By Larry Elliott
Here's a strange thing. The global economy has been growing at
its fastest rate in decades. China and India are booming, and the
demand of the big developing countries for raw materials is even
helping Africa to put on a spurt.
In the developed world, there may be clouds on the horizon but
policymakers don't wake up in the middle of the night in a cold
sweat worrying about double-digit inflation or an imminent
slump.
A more rapid pace of growth adds to the pressure on the
environment. Almost without exception, the recent scientific
evidence has indicated that man-made factors are leading to global
warming.
As economies expand, they need more power, more steel, more
concrete. As consumers get richer, they demand cars, holidays,
flat-screen TVs. Feedback mechanisms come into play as well.
Wealthier consumers can afford to put in air conditioning to cope
with the heat but cooling systems require even more power, which
adds to carbon emissions and ultimately assuming the science is
right to global temperatures.
Yet, perversely, the fact that the global economy is in a sweet
spot has created the policy space to deal with the problem that a
period of strong growth has itself helped to create. When
unemployment is going through the roof, politicians want as much
growth as they can get as soon as they can get it, and the
environment is a long-term problem that can be put off until
another day.
So, when Tony Blair goes to Berlin today to meet Angela Merkel,
the agenda for the mini-summit will be totally different from what
it would have been when the prime minister met Helmut Kohl in the
early days of his premiership.
There will be no talks about the euro or the stability and
growth pact. Economics will be tangential to discussions on
securing a post-Kyoto treaty on climate change, what needs to be
done to clinch a deal on global trade, how Europe should respond to
the latest developments in the Middle East peace process, and a
package of help for Africa, concentrated on HIV/Aids treatment and
education.
Overwhelmingly, it is a good thing that there is a different
agenda from a decade ago. For a long time, lobby groups complained
with some justification that the issues that mattered (i.e. the
issues they were interested in) were ignored at international
gatherings. Now global warming and Africa have moved to center
stage, and that's progress.
There is, however, reason to be cautious. First, the fact that
there are no longer meetings of the G7 called to stabilize
currencies does not mean that the big economic issues have all gone
away. What it means, worryingly, is that the main players are
either unable or unwilling to do anything about them.
This impotence was well illustrated by the weekend's meeting of
the G7 in Essen, Germany a far cry from that held 20 years ago this
month at the Louvre in Paris. That meeting agreed to use
intervention in the foreign exchange markets to put a floor under
the falling dollar. In theory, there was similar business for
finance ministers and central bank governors to get their teeth
into.
For a start, they could have taken up the suggestion of the host
nation to do something about the weakness of the yen. It is being
dragged lower by Tokyo policymakers' unwillingness to risk raising
interest rates for fear that the result would be to kill off what
already looks like a faltering economic recovery.
Germany, relying heavily as it does on exports, is worried about
this trend and about the growing tendency of hedge funds to borrow
money cheaply in yen and invest it in higher-yielding assets
elsewhere, often at considerable risks. Yet the Japanese did not
want to talk about the yen, while the countries with a light-touch
approach to hedge funds (Britain and the US) will do nothing to
risk the ire of the City of London and Wall Street.
The G7 might also have taken steps to tackle the chronic global
imbalances, in particular the need to massage down the US trade
deficit through a controlled depreciation of the dollar. This,
though, would require reciprocal action from China, which has been
running up record trade surpluses with the US. It has become
abundantly clear that the G7 is not the body for achieving this
end.
(China Daily via The Guardian February 13,
2007)
