George Soros lamented that G20 is the ‘last chance’ for the world to solve this global economic crisis. A well known personality even suggest that UK may need the IMF to bail her out. G20 leaders will converge in London next week and I can expect financial market will be on the edge. Failure will further erode the wafer thin confidence that temporarily held the world market stable. Most don’t expect any concrete or broadly acceptable solutions from the leaders of G20. Some form of consensus will emerge, but one has to read in between the lines, read what is not mentioned.
There is just too much disparity with regards to stimulus measures between Europe and US, between the net borrower USA and the net lender like China. There is also big difference in how to regulate the free market and financial system. Proponents of free market enterprises, especially US and UK are dead worried this meeting will lead to its slow death. As such, it is most unlikely, a comprehensive agreement or some form of MOUs on economic measures will not be adopted or a new financial architecture will ever be achieve.
The world before this crisis had predominantly been dominated by the West in the form of G7. It’s basically a white man’s club except for the pacifist, pro-American Japan. Over the years, they have set all the rule for themselves and the rest of the world to follow. Now with the entrance of non-white, there will be some uneasiness and acceptance of new members will need some time. What compound matter, is that, the old rich, G7 are the major troubled parties and the non-G7 are the net lenders. Ironically, it’s the old colonial masters now seeking assistance from its previous subjects. It hard medicine to swallow when China questions and demands how safe is their loan to US. It’s always hurtful to ask a rich country to give public assurance about its financial integrity and stability.
Furthermore, if the US and EU do accede too much of Asian’s suggestions, it does not look good especially on Barack Obama and Brown. The domestic constituency may see this as ‘kowtowing’ to non-Whites. The neo-conservatives, anti-communists, right wing groups and racist groups will be very upset.
The Chinese has also suggested creating a new reserve currency. It’s a sign of China’s nervousness and also strongly hinting that the US dollars may not be untenable for long. China concern is legitimate. It has about US$750B in US treasury bills. Everyone knows that, when the ship sinks, all the rats will run away. The US will undoubtedly disagree on this proposal. Any new reserve currency will cause an instant collapse to its already weak currency. Most East Asian countries and Singapore with colossal amount of assets invested in US will certainly be anxious. A change of reserve currency at this stage is therefore a ‘loose-loose’ situation. Decades of saving through hard work can be wiped off in a very short time.
The least that G20 can do is to provide and build confidence that the market needed badly. Big and rich countries must put down their egos and differences and acknowledge that sacrifices are needed, endure the pain, move with urgency, cooperate and row in the same direction to get out of this economic mess.
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