Monday, June 28, 2010

G20 Must Cooperate for a Sustainable Recovery

The cooperation of G20 member states is the key to a sustainable recovery. Although the global financial crisis revealed the interconnectedness of the modern economy, it also underscored the importance of cooperation.

The Toronto G20 meeting was billed as a final checkup to ensure agreements reached in Pittsburgh would be finalized at a November gathering in Korea, where leaders would then plan for a post-crisis world.

"Our highest priority in Toronto must be to safeguard and strengthen the recovery," President Barack Obama wrote in a letter to his G20 colleagues. "We worked exceptionally hard to restore growth; we cannot let it falter or lose strength now."

"This crisis proved, and events continue to affirm, that our national economies are inextricably linked," Obama said. "And just as economic turmoil in one place can quickly spread to another, safeguards in each of our nations can help protect all nations."

In 2009, despite disagreements between wealthier and developing nations, the financial and climate change crises spurred unprecedented levels of global cooperation.

In 2010, although we are in recovery, a slowdown has been signaled by the Economic Cycle Research Institute's weekly leading index.

Issues that threaten the recovery include Europe's debt difficulites, slow US job growth, and an unstable US housing market. With interest rates near zero, the most powerful policy tool remaining is resuming asset purchases, but printing money will cause inflation.

Economic uncertainty is highlighting disagreements between the United States, Europe and China.

Jose Vinals, director of the IMF's monetary and capital markets department, said G20 unity was one of the biggest positive economic developments in recent years, but disunity would damage the recovery. "It's fundamental that you keep your house in order, but it's also fundamental that when the going gets rough, you cooperate," he said at a conference in Washington.

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