Advanced economies must take emerging economies into confidence to get desired results
The 2008 financial crisis cast a deep shadow over the recent G7 annual meeting, which kept trying to come up with solutions that could lead to the desired economic results. Over the past eight years, they have been making every possible effort to find practical solutions and bring back growth.
Unfortunately, their efforts got aborted by an array of insurmountable obstacles. No wonder the meeting in Japan last week has brought nothing new but more flimsy recommendations that reiterated pledges to achieve robust growth and avoid currency devaluation.
But how will this be achieved? Each country has its own agenda and those of the emerging economies might be completely different from those of the G7 members.
If we took a closer look at each member in turn, we would perceive how their financial policies are somehow different from one another and even contradictory some of the time.
The US, for example, is still relying on cash injections via quantitative easing (QE) in a bid to stimulate its growth, while European nations are floundering in the midst of the Eurozone crisis, particularly the endless one involving Greece that devours billions of euros to no avail.
The UK has to make up its mind on whether to retain an EU membership, which will be decided through a referendum this month.
As for Japan, it is not better off than other members and is still mired in a recession after more than a decade ago. And its growth rate is almost zero in spite of having zero or even negative interest rates. In addition, its crisis has no promising prospect of a turnaround in the near future.
Only Canada among G7 members enjoys some sort of economic and financial stability. However, its weight is not significant because its economy is small if compared not only with other members’ but also with other emerging economies.
Obviously, the recommendations brought out at the recent meeting are meaningless and came just to save members’ faces as everyone understands there is an upcoming crisis that might be worse off than in 2008. The indications are getting clearer and the members have nothing more to do.
A currency devaluation will have a profound impact on funds, businesses and trading between countries.
The best example of this is the US, which has been exercising enormous pressure on China over its currency but without anything to show for it, because China’s declining growth depends on exports and that means fewer choices.
At the same time, other economies including India, Brazil and Mexico are also suffering. G7 members are not ready to make more concessions in a currency war as their exports are highly dependent on the exchange rate of their own currencies.
Consequently, the world today is facing a stress test and moving towards more obstacles. It is undeniable that efforts made by the G7 members are not enough, especially after excluding Russia from the group on the heels of the Ukraine crisis.
Therefore, the emerging economies should go hand in hand, including China, the world’s second-largest economy, and the big oil-producing countries.
They could collectively implement the recommendations from the recent meeting, though they must bear in mind there are no guarantees to avoid another crisis in future.
