How Not to Run the Global Economy: International Trade and Finance as Geo-Political Maneuvering

Our blogger Michael Carbone reports about the Bertelsmann Foundation’s fifth annual conference which focuses on economic growth through innovation, global financial governance and the eurozone crisis: “System Upgrade: Time for an Economic Reboot“.

In the lead-up to IMF and World Bank’s Spring Meetings, the Bertelsmann Foundation and the Financial Times held their annual conference on the state of the international economy at the Ronald Reagan Building and International Trade Center. On the mind of many of the participants were the recent events in Cyprus and Japan, the continuing political and economic malaise in the US, and the progress of a US-EU free trade agreement and of an international nonprofit credit rating agency. Connecting many of these topics was a fear that the US and EU were shifting towards increased Western economic protectionism and parochialism due to geo-political interests.

In Cyprus, the European Central Bank approved a $10 billion bailout for the ailing Mediterranean country, contingent on depositors paying a “haircut” or tax on their deposits – something no other European bailout had previously included. Because 22% of deposits are owned by Russians, this was seen as the European Central Bank, European Commission, and IMF singling Russia out, with Cyprus stuck with much of the economic repercussions.

And in Japan, its central bank surprised global markets by pushing to double the money supply within a year to combat deflation. In turn, however, this move will make the internaitonalization of the Chinese renminbi more difficult, as Charles Dallara chairman of the America at Partners Group noted on the Global Financial Governance panel. Growth policies lacking international coordination were highlighted in relation to the US’ inability to constrain its discretionary monetary decisions through better economic coordination with its partners. This is compounded  in turn by its anemic elite-focused economic recovery and the inability of Congress or the Executive to seriously try to resolve the US’ increasing economic uncompetitiveness – whether education and skills training or its sky-rocketing health costs due to a highly inefficient private health care system tied to employment, discussed at length at the previous year’s Bertelsmann Foundation – Financial Times conference.

And the US’ desire to look abroad for economic solutions that are needed at home underscores the continuous effort the country makes pushing free trade agreements, most significantly the potential US-EU Transatlantic Trade and Investment Parternship (TTIP). Geo-politicking doesn’t escape the proposed agreement, however, with additional signatories to treaty likely – most significantly, Mexico and Turkey. Multiple participants at the event expressed fear that TTIP – combined with the ever-expanding Trans-Pacific Partnership country roster — is a discriminatory response to the rise of large developing countries like BRICS, and an abandonment of pushing trade liberalization on the global stage in exchange for Western protectionism and geo-political maneuvering.

Whether these fears will be realized is speculation, but the fact that they are being aired – by Western economists and financial experts – underscores trust gap already being felt in global economic and financial institutions and businesses. This year’s conference took the initial steps towards acknowledging these issues in the open, and hopefully these discussions will continue at the IMF and World Bank Spring Meetings.

Further blogposts by Michael Carbone about this year’s conference:

With ACTA Lessons Unlearned, An Uncertain Future for “21st Century” Free Trade Agreements

The Challenges of the Eurozone

“G Major”: The Key for Successful Global Financial Governance?