Archive for June, 2010
Congress Makes a Mockery of Obama’s Call for More G-20 Stimulus (and Hands Germany Victory in Advance)
When China decided last weekend to “relax” its dollar exchange rate policy, at least rhetorically, much drama-seeking media attention instead shifted to the next likeliest flashpoint at the coming G-20 Summit, namely the alleged transatlantic crisis over fiscal policies.
On this side, as expressed in his letter to the G-20 leaders, President Obama is “concerned by weak private-sector demand and continued heavy reliance on exports in countries with already large external surpluses”1 and clearly wants especially Germany to do more to stimulate domestic demand. On the other side, EU leaders in their June 17 European Council conclusions equally directly stated that “the G-20 should agree on a coordinated and differentiated exit strategy to ensure sustainable public finances,”2 indicating that fiscal austerity is more important to them than continued fiscal stimulus.
Op-ed in the Financial Times June 10, 2010 Global imbalances are about to jump again. New estimates from the Organization for Economic Cooperation and Development suggest that the sharp decline in the exchange rate of the euro, along with tepid European growth, will produce eurozone surpluses of at least $300 billion (€251 billion, £208 billion) […]
Op-ed in Business Standard June 23, 2010
Of all the major couplings that have gained prominence—Jairam Ramesh’s “Chindia,” Niall Ferguson’s “Chimerica,” and Martin Wolf’s “Chermany”—it is very much the latter that is in the spotlight.
The announcement over the weekend by China to introduce greater exchange rate flexibility is unambiguously good news, provided, of course, that intent is followed up with some actual upward movement of the renminbi. Domestic economic imperatives, and specifically the role of currency appreciation in dampening overheating, have been widely credited as having influenced China’s decision. But there is a mystery here. China’s competitiveness was getting eroded by two sources: domestic wages and prices, which are rising faster than in partner countries, and by the decline of the euro, which—combined with China’s peg to the dollar—was causing the renminbi to rise in trade-weighted terms. So why is China, so wedded to the mercantilist export growth model, changing its policies to further aggravate the decline in competitiveness, especially when the global recovery is still looking shaky?