G-8 and G-20 leaders on course to disagree | Business| Economy and finance news from a German perspective | DW | 25.06.2010
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G-8 and G-20 leaders on course to disagree

Leaders attending the G-8 and G-20 meetings in Canada will debate – and inevitably disagree – on several issues impacting the global economy. Germany's austerity program and its ban on naked short selling are among them.

Chancellor Merkel hopes to show President Obama the path to recovery

Chancellor Merkel hopes to show President Obama the path to recovery

Maneuvering by some member nations on key economic issues ahead of the global summits have many economic and financial experts wondering about the outcome of the talks.

Last week, US President Barack Obama called on member countries to avoid weakening the global economic recovery by focusing too much on debt reduction.

That plea was firmly rejected on Thursday by the nation that prompted the president's response in the first place: Germany.

Defusing the deficit

In an interview with German public broadcaster ARD on Thursday, Chancellor Angela Merkel said the government would stick to its austerity program. She pointed to a federal deficit of 80 billion euros this year in a budget totaling 320 billion euros, emphasizing an urgency to reduce the deficit.

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Merkel added that she had told Obama in a phone call that the German government has done much to support economic growth with stimulus measures. The chancellor said that she had made clear to the president that "Germany will do much more for the recovery of the world economy in 2010 than (other countries) on average."

Financial experts say Germany's focus on deficit reduction instead of spending is one of several issues that could divide summit members.

Germany is a member of the G-8 (Group of Eight), the group of the world's wealthiest nations, with the US, Canada, Britain, France, Italy, Russia and Japan. The G-8 summit precedes the G-20 (Group of 20). The group covers 20 economies, which consists of 19 countries and the European Union. Collectively, it accounts for 85 percent of the global production and more than 80 percent of world trade:

Roiled international partners

Besides its austerity program, Germany has also led the charge on banning "naked" short sales to slow speculators who bet on European governments defaulting on their loans.

A naked short sale is effectively a bet that a certain stock or government bond will lose value. Unlike conventional short selling whereby traders borrow securities to sell and buy back at a profit once their price has fallen, naked short selling leapfrogs the borrowing process altogether and is thus viewed as far riskier form of trading.

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The move has stunned Germany's international partners and roiled financial markets worldwide.

Germany is also a member of a group, including France and the United Kingdom, which is pushing for a new bank charge to help meet costs of dealing with financial crisis.

This issue, together with the austerity program and naked short selling ban, has led to some tension among G-20 members ahead of the summit. All three are areas are likely to result in plenty of disagreement as leaders debate steps to prevent a repeat of the global financial and economic crisis.

German isolation

Some observers believe Berlin could find itself isolated among many of the G-20 members and fail to win support for key measures it seeks, such as greater regulation of financial markets.

The high-level meetings in Canada will also likely include discussion of how China intends to implement its currency adjustment plan, of how the G-20 should respond to global crisis spots and what international sanctions it should maintain or add against Iran.

The Gulf of Mexico oil spill is also a possible discussion point, underscoring a need to shift resources into energy efficiency and renewable energy sources.

However, the environmental group Greenpeace claims it has obtained a draft G-20 statement that essentially reverses last year's commitment to "phase out and rationalize over the medium term inefficient fossil fuel subsidies." The draft includes new wording such as "voluntary, member-specific approaches."

Author: John Blau
Editor: Sam Edmonds

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