November 6, 2011
The G20 summit last Friday certainly did not measure up to the billing it was given by the UK Chancellor in September, when he said that policymakers had “six weeks to save the world”. Nevertheless, equities and other risk assets have risen markedly over the same period. As Goldman Sachs’ Jim O’Neill argues this weekend, this is probably due to improvements in economic data in the US, and to the rising prospects of a soft landing in China. A less optimistic way of summarising recent news is to say that Europe has now decoupled from the rest of the world. It is already in recession, which may prove to be a deep one, and the debt crisis is arguably getting worse, not better.
There never was much reason to expect the G20 to come to the rescue of the eurozone. Certainly, there are no grounds in terms of equity why such an extraordinarily rich and economically successful region should be “rescued” by poorer nations. Furthermore, the eurozone has a small surplus on the current account of its balance of payments and a manageable public debt position, so it really has no need for outside capital. The problem is one of the distribution of funds within the eurozone, which admittedly has proven very difficult to solve.
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