Merkel meets heads of economic institutions | Business| Economy and finance news from a German perspective | DW | 13.05.2014
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Merkel meets heads of economic institutions

Top international finance officials have met Chancellor Angela Merkel in Berlin to review the state of the global economy and discuss how their organizations can work together to manage global economic challenges.

If top officials of the world's main international economics and finance institutions can be considered celebrities, then German Chancellor Merkel hosted a star-studded group of A-listers on Tuesday in Berlin. The meeting in the Chancellery included the heads of the Organization for Economic Cooperation and Development (OECD), more commonly called the 'club of rich countries'; the International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO), and the International Labor Organization (ILO).

At a press conference after the meeting, Merkel said those present unanimously took the view that the major economic crises of the past few years had been largely overcome - but that none of the crises would permit complacency.

In a joint press release, the leaders said that IMF and WTO forecasts projected increases in both world economic output (3.6-3.9 percent) and global trade (about 5 percent) during 2014 and 2015.

However, at the global level, very high unemployment, a sizeable output gap, low investment, widening inequality, and a slowdown in emerging economies continue to drag on growth prospects.

Debt spiral

Debt levels in most industrialized countries are still too high at the government, company and household levels. Unsatisfactory labor market performance in many countries remains a fundamental challenge.

The leaders agreed that their organizations would continue to cooperate on managing global economic challenges in developing as well as developed countries.

Among othwer things, they mentioned structural reforms aimed at "enhancing competitiveness", and "growth friendly consolidation" of public budgets.

The public will likely hear more about the "Post-2015 Agenda." The leaders' press release described the Agenda's central aim as being '"to improve living conditions for all people worldwide and to protect the natural resource base and the Earth's systems … also for future generations."

The question is whether the fondness of leaders for ambitious agendas can be coupled to concrete, effective measures to achieve them in practice. For example, "growth friendly consolidation" of public budgets, more commonly referred to as government austerity, is considered by many economists to be precisely the wrong medicine to administer to economies that are already in recession.

The diagnosis is correct, but is the medicine appropriate?

In many countries, aggregate private household and business indebtedness are at an all-time high. As a result, the private sector is attempting to deleverage (reduce net aggregate debt). That means reduced aggregate spending, and less demand. Richard Koo, Chief Economist of Nomura Securities, refers to these conditions as "balance sheet recessions", and says that if both governments and households attempt to reduce spending at the same time, the result is economic depression - as in much of southern Europe today.

js/hg (dpa, Reuters)