The world’s leading nations were divided on Friday night over plans to reduce global economic imbalances, with China determined to head off international criticism over its huge foreign exchange reserves.
France had hoped to strike a deal at the weekend on economic indicators that would be used to monitor imbalances, including current account balances, real exchange rates and foreign exchange reserves.
In an urgent appeal for agreement, Nicolas Sarkozy, French president, asked G20 finance ministers and central bank governors to look beyond a “mechanistic approach”. “We do not have much time,” he said in Paris.
“We will not succeed in everything. But the worst-case scenario would be to refuse to address the real subject — the international monetary order … I hope your discussions will not get bogged down in interminable debate on these indicators.”
China, however, signalled its opposition to the monitoring plan. “We think it is not appropriate to use real effective exchange rates and reserves,” said Xie Xuren, Chinese finance minister.
–Nicolas Sarkozy, French president
His comments further lowered expectations that any substantial agreement would be reached at this weekend’s G20 meeting, which brings together advanced and emerging economies. The decision to adopt guidelines to help global rebalancing was adopted at the G20 summit in Seoul in November, and is intended to form a central part of this year’s meetings.
“Of course you have to look at measures of imbalances,” argued Tim Geithner, US Treasury secretary. In Seoul, the US failed to secure precise targets for current account surpluses, with a proposed limit of 4 per cent of gross domestic product.
While Germany supports using the suggested economic indicators for monitoring purposes, like China it opposes any specific targets.
“There is a vast majority of countries that support having these five indicators together,” said Jörg Asmussen, Germany’s financial state secretary.
Jim Flaherty, Canada’s finance minister, said he believed there was agreement on two indicators — the level of public debt and deficits, and the level of private savings — but there was difficulty agreeing on the current account measure.
China wants a focus on trade figures, rather than the full current account.
In his opening speech before a working dinner in the Elysée palace, Mr Sarkozy also pushed for more regulation of the commodity markets, and an “innovative financing scheme” to help industrialised nations finance technology transfers to developing countries to deal with global warming.
He said that a “tiny levy on financial transactions” would be such an innovative scheme, appealing directly to Mr Geithner at least to consider the suggestion.
On commodity market regulation, Mr Sarkozy said that all markets should be subject to regulation, or they would be “governed by speculation”. “I am suggesting a global strategy combatting volatility and regulating speculation,” he said