All that Kevin 747 stuff seems to have been forgotten for the moment as the Prime Minister heads off to meet Barack Obama and attend the G20 meetings. “It’s good that he’s going there to see President Obama and of course he’s going to the G20 meeting, as he has to do that,” said Malcolm Turnbull yesterday. Only Piers Akerman could summon the bile — and Akerman’s bile is the concentrate they make concentrates from — to condemn the PM. “Kevin Rudd will be in his favourite place this week,” he said in Saturday’s Telegraph, “that is, a long way from Australia.”
Boom boom. Unfortunately, he’s here all week and longer.
Rudd leaves with the impression he’s not just going for the networking opportunities but because he’s a Man With A Plan. Specifically, he’s keen to restructure the International Monetary Fund in favour of the emerging giants China and India, establish an internationally-agreed framework for restoring confidence to the global financial system, coordinate further fiscal stimulus by governments and further push Australia’s involvement in the development of better financial regulation — including his pet project of guidelines that address the link between executive remuneration and risk.
It’s likely Rudd doesn’t see that agenda as particularly ambitious, but in fact essential for his own domestic political purposes. The Government can’t go on propping up domestic demand. The world economy has to be got back on a growth path — which can’t happen until its financial system recovers, and then growth kickstarted with further government stimulus. Rudd’s nightmare must be of sluggish growth for years to come, the sort that barely touches unemployment and keeps even disciplined budgets in deficit.
The flaw in the logic, however, is that there is no actual framework for pursuing this agenda. The G20 has no institutional structure. It’s a meeting, not a process. There are working groups, and agenda papers, and the trappings of a process, but it’s all temporary and voluntary. It’s also not clear that the Europeans see things in quite the same way as ourselves and the Americans. France, for example, seems to regard high unemployment — particularly among its young — as pretty much normal. Years of deficits mean already high levels of public debt across Europe. There is little apparent enthusiasm for further efforts to temper the impact of the global recession, possibly on the basis that over-generous welfare systems can be relied on take care of the unemployed.
Nor are the Europeans likely to be keen on reallocating voting power within the IMF. Any move away from WWII-era international structures rings alarm bells. For all their social democratic rhetoric, the Europeans prefer their international institutions to reflect the time when white people ruled the world and everyone else participated with their grace and favour. That’s why we still have a UN Security Council with the UK and France on it.
International action to purge the financial system of bad loans is also unlikely to be coordinated. There’s been minimal coordination so far — indeed, the rapid series of deposit guarantees last year was because the Irish panicked and instituted their own, causing a domino effect. Timothy Geithner, who with Nelsonesque rapidity has taken barely two months to become “embattled”, is to shortly unveil the Obama Administration’s package to address toxic assets, which will centre on a Federal Government bad bank, and direct intervention to get mortgage and small business credit flowing again. The plan is already drawing fire from economists like Paul Krugman who argue that the problem is structural in the financial system and the US Government needs to seize defaulting banks.
Worse yet — and this is the most disturbing part for Australia — the protectionist instinct is still rising. The World Bank identified 17 of the G20 as having resorted to protectionist measures since the economic crisis began — including the Rudd Government’s automotive industry package. Russia, China, India, the US — pretty much everyone is guilty. And now carbon emissions-based protectionism — the sort that levies a carbon impost on imports, not the traditional sort that subsidises climate change impacts from big polluters — is on the agenda. As one of the world’s most carbon-reliant economies without any systematic measures to reduce our carbon emissions, Australia could be target number one for climate change tariffs.
That will make all those carbon leakage arguments rather tricky, won’t it?
With our heavy reliance on imported capital and trade, Australia goes to the G20 as a supplicant, hopeful that the rest of the world can gets its act together sufficiently to at least arrest the downward economic spiral. Don’t count on anything much emerging from the meeting, despite the Prime Minister’s enthusiastic efforts.