The sun shone this weekend over the skyscrapers of Shanghai, but the finance ministers and central bankers of the G20 barely saw the sunlight. Their first proper session began at 8.30 a.m. on Saturday, in a windowless conference room in the Hotel Shangri-La. The unpleasant surroundings suited the mood.
Wolfgang Schäuble, the German finance minister, repeatedly insisted it was not a crisis summit, but indeed a summit with quite a few crises to think about.
The final communiqué listed off the increasing risks to the world economy: turbulence in the international capital markets, the collapse of commodity prices, escalating geopolitical conflicts, the possible impact of a U.K. decision to leave the European Union and, of course, the ongoing refugee crisis. It could all turn into a poisonous cocktail for the world economy.
The sense of impending challenges prompted a new sense of unity among the assembled ministers and bankers. Their goal was to minimize disputes and avoid adding to the uncertainty.
Their final communiqué had already been agreed on Friday evening, a few hours into the summit. “There just weren’t any real arguments,” said one negotiator. The almost traditional G20 squabble between proponents of austerity, such as Mr. Schäuble, and supporters of stimulus, like the U.S. Treasury Secretary Jack Lew, was barely to be seen.
“The accent must be on driving growth through structural reforms.”
After the meeting, Mr. Schäuble spoke of a growing “mainstream” consensus in favor of structural reform – his own long-held principle – and not of more loosening of monetary policy or debt-financed stimulus.
“Talking about further stimulus measures distracts from the real tasks at hand,” he said. That would turn everyone into “The Walking Dead,” he joked, referring to the popular American zombie television series.
Jeroen Dijsselbloem, the Dutch finance minster and president of the Eurogroup of euro zone finance ministers, echoed this view in an interview with Handelsblatt. Mr. Dijsselbloem, a close ally of Mr. Schäuble, said he saw no necessity for large-scale stimulus. Instead, he argued, the accent should be on “driving growth through structural reforms.”
All in all, Mr. Schäuble and Jens Weidmann, the head of the German central bank, the Bundesbank, had a good summit. Their insistence that growth had to be based on reforms found a surprising number of supporters. The communiqué also gave a hint of the growing strength of Mr. Schäuble’s position. The final text reaffirmed that “monetary policy alone cannot lead to balanced growth.”
The Saturday opening session featured Christine Lagarde, executive director of the International Monetary Fund, and Angel Gurria, head of the Organization for Economic Cooperation and Development, the OECD, which represents many industrialized countries. According to delegates, both made impassioned appeals for structural reform, calling on countries to push through promised measures.
Mr. Schäuble said nothing all morning. He didn’t have to: Others made his case for him.
At their 2014 meeting in Brisbane, Australia, G20 countries agreed to implement 800 reform measures intended to add an extra 2 percent growth to the world economy by 2018. But so far, fewer than half the measures had been put into effect, corresponding to extra growth of just 0.8 percent, according to Ms. Lagarde and Mr. Gurria.
The world economy was under increasing downside pressures, Ms. Lagarde noted. “To confront this challenge, we need action now,” she said, adding that at its 2016 Spring Meeting, the IMF would present more indicators measuring the implementation of reforms.
China, which hosted the event, was a crucial factor behind the ubiquitous calls for structural reform. In preparatory meetings for the summit, the Chinese had given their highest priority to reform. Now Lou Jiwei, Chinese finance minister, emphasized that structural reforms could safeguard long-term growth among the G20.
“We are opposed to protectionism and the use of currency devaluation to gain competitive advantage,” he said.
Beijing had prepared a thorough package of reforms, including cutting bureaucracy, building social and health systems, and the reform of publicly-owned companies. In all these fields, China wanted to make more room for the free market, Mr. Jiwei said.
Mr. Dijsselblom told Handelsblatt he welcomed the Chinese push for reforms, as well as assurances on currency devaluation. He said it had been agreed that all G20 states would be given advance warning of any future currency devaluations, to avoid possible misunderstanding.
“Talking about stimulus measures distracts from the real tasks at hand. It could turn everyone into the 'Walking Dead'!”
Another factor in the peace between austerity and stimulus factions at the G20 is that Mr. Schäuble has in fact made large concessions to his critics. German government spending on the refugee crisis will amount to an estimated €54 billion, or $59 billion, of extra money in the next four years. This effectively rules out the large German budget surpluses once planned. The fiscal landscape is very different now, meaning Ms. Lagarde’s G20 hint – that states with the capacity for spending should use it – was aimed as much at the Canadians as the Germans.
Only Mr. Lew, the U.S. treasury secretary, hinted at disagreement, emphasizing weak international demand as the key danger to the world economy. “We must redouble our efforts to boost global demand,” he said. This would take fiscal measures as well as structural reforms: G20 members had been unanimous on that, he added.
By the time he spoke, Mr. Schäuble had already left for the airport.
The German finance minister will hope to reinforce his ascendancy in the G20 when he hosts next year’s meeting in Germany. The 2017 meeting of finance ministers and central bank governors will be staged in Baden-Baden, in the south of the country, according to information seen by Handelsblatt. The small spa town, close to Mr. Schäuble’s own birthplace, hosted a NATO summit in 2009.
To foster continuity, the G20 has established a “troika,” bringing together officials from the previous, current and next G20 presidencies, in this case Turkey, China and Germany. In the past, the organization has been accused of making grand pronouncements that were never followed through. Given the Chinese presidency’s championing of structural reforms, Mr. Schäuble will be only too pleased to promote continuity when Germany takes over in 2017.
Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. Stephan Scheuer is Handelsblatt’s China correspondent, based in Beijing. To contact the authors: firstname.lastname@example.org and email@example.com.