G20 Finance Ministers meeting preoccupied by Brexit

By Tim Collard
0 Comment(s)Print E-mail China.org.cn, July 27, 2016
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The meeting of G20 finance ministers and central bankers was held in Chengdu from July 22-23 under an unusually blue sky. As is usually case for such events, China ensured a pleasant atmosphere and demonstrated its deep commitment to environmental protection by taking radical measures to cut the city's industrial pollution, suspending the operations of chemical factories and restricting road transport to create a memorable climate for the meeting.

Yet however blue the skies were over Sichuan's capital, clouds still hang over the world's economy. China's G20 presidency has quite a number of challenges to deal with, as the turbulence in the global economy shows no immediate signs of relenting. And a new and unexpected problem has now entered the picture: "Brexit." The British decision will only serve to unsettle the economies of EU members, which in turn will certainly bring new uncertainties into the global economic situation. This meeting was the first major multilateral gathering since the Brexit decision, and the event loomed large in the deliberations of the participants.

The group of finance ministers and central bankers issued a communiqué after the meeting, stating that Britain's vote heightens risks in the world economy, but that G20 countries were well equipped to proactively address its economic and financial consequences. However, in order to ensure this declaration, the participants agreed that it is essential that the U.K. remains a close partner of the EU; thus it is important that the exit negotiations are not marked by destructive acrimony.

An important lesson from the unexpected British move was drawn by some of the participants: that the fruits of economic growth must be equitably shared among the population. The surprising result of the Brexit vote has been attributed to a widespread feeling that EU-linked growth has largely benefited big businesses and investors and that its benefits have been too heavily concentrated in London. (London voted strongly to remain in the EU: the "Leave" vote came largely from the neglected regions.) It is important that economic and social stability is underpinned by ensuring growing prosperity for working families and the middle class. This point was raised by U.S. Treasury Secretary Jack Lew, but it is also in line with China's internal development policy of ensuring that prosperity is widely disseminated.

Of course, the real problem with Brexit is that its potential effects are so utterly unpredictable. The immediate reaction to the vote was very negative for currencies and stock markets throughout Europe, but this has already begun to rectify itself in the short term. Brexit led directly to Prime Minister Cameron's resignation, but the government has reconstituted itself on a stable basis very quickly. Britain has not yet triggered the process for decoupling herself from the EU, preferring to wait until the immediate effects of the vote have settled down and the climate is more propitious. And, although many European governments are tempted to cause difficulties for Britain and punish the country for its temerity, the clear view of G20 financial leaders is that a close partnership must be maintained for everybody's sake.

And at least the U.K./EU contretemps has diverted attention from the background concerns over declining growth in China. However, Chinese officials present at the meeting were not slow to point out that the world cannot look to China this time for the kind of massive support which shored up the global economy during the 2008 crisis. At that time, Beijing unleashed a RMB 4tn stimulus, consisting largely of investment in infrastructure; this boost provided about half of all post-crisis global economic growth. But the recent developments have also neutralized earlier criticisms of China's currency management policy; the RMB has been declining in value relative to the dollar in recent months, but this time there was no suggestion that China is allowing this to happen deliberately for its own advantage.

It is clear that the outcome of the Brexit referendum was not what the majority of the world's financial and economic leaders would have wanted or expected, but the basic strength of the world economy, underpinned by the newly-emerged strength and active economic and financial diplomacy of China, should suffice to absorb the shock of the new development. It can be hoped that the position regarding the future of Britain and the EU will have become clearer by the time of the main G20 summit in Hangzhou in September; but at least a degree of consensus has been established on the way forward and on the approach required of all participants to keep the world economy on an even keel.

Tim Collard is a columnist with China.org.cn. For more information please visit:


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