Tag: G20

G20 finance chiefs to grapple with tackling tax evasion

The German town of Baden-Baden is enjoying the global spotlight as it gets to host the world’s most powerful economic policymakers. They have plenty of challenges to talk about. But solutions are tough to come by.Whoever wants to test their luck at the casino in Baden-Baden may feel disappointed this weekend, as it will remain closed from Friday until at least Saturday evening.

The reason for the closure is the gathering of some very important people who control a lot of money, namely the finance ministers and central bank chiefs of the world’s top 20 economies.

Germany currently holds the presidency of the G20 grouping – a club of 20 most important developed and emerging economies in the world. The meeting in Baden-Baden sets the stage for the leaders’ summit planned to take place early July in Hamburg. The gathering will also demonstrate if any of the topics on the agenda set by the host gains traction among the participants.

Trump robs attention

German Finance Minister Wolfgang Schäuble will strive to appear as a fighter against tax evasion and avoidance by multinational firms. He would also like to set the tone on financial stability, debt reduction (his favorite topic) and forming a new partnership with Africa.

Another issue high up on the agenda is monetary policy, particularly given the divergence in the policy outlook between the US Federal Reserve and the European Central Bank.

Tackling all the above-mentioned issues requires international cooperation and a fine understanding of the causes and effects of each country’s actions on others.

But global cooperation seems to be out of vogue now in Washington, where Donald Trump’s White House espouses an “America First” policy. The new US president’s penchant for bilateral “deals” instead of multilateral negotiations is unambiguous.

He also wants to offer tax incentives to US firms, weaken the dollar and relax the regulations imposed by none other than the G20 on financial institutions in the wake of the 2007-08 financial crisis.

Turning towards Africa

The top priority for the group has narrowed to ensuring that the international policymaking process runs smoothly.

Even if the G20 has long seized to be a dynamic body, it still remains the only global forum that appears to function, at least partly.

It’s still unclear whether that continues to be the case under President Trump.

Schäuble’s meeting with US Treasury Secretary Steven Mnuchin on Thursday evening offered the German minister a chance to employ all his diplomatic skills to convey the significance of his agenda to his American counterpart.

It could certainly work in the case of Schäuble’s project for Africa, named “Compact with Africa.” The plan foresees an offer of investment partnership, aimed at creating better conditions for private investment in African countries.

Five African nations – Ivory Coast, Morocco, Senegal, Rwanda and Tunisia – will be represented at Baden-Baden.

All eyes on Washington

Contentious issues such as the fight against international tax evasion, measures against so-called shadow banks, money-laundering and terror financing have been set for discussion on Saturday.

Nevertheless, the trickiest problem relates to monetary policy. The G20 nations have long committed themselves to not manipulating their currencies to gain undue competitive advantage. But Washington’s accusations against Berlin over the past couple of months that Germany is exploiting its trade partners with the help of a weakened euro have unnerved German policymakers.

Schäuble will no doubt reiterate once again that Germany has no influence over the decisions made by the European Central Bank.

Participants at Baden-Baden will on Friday also turn their attention to what happens in Washington, which is likely to overshadow the ministers’ gathering. There, German Chancellor Angela Merkel will meet US President Donald Trump at the White House. She was originally scheduled to fly to meet the new US leader on Tuesday, but the trip had to be postponed due to an approaching blizzard.

This time round, however, at least the weather conditions are better. The talks between the two leaders at the White House are certain to influence the discussions in Baden-Baden.

March 17, 2017
Fintech regulation on G20 agenda

For banking and insurance, digitization could prove as disruptive as it has been for the media industry. Is that a risk to financial stability? Germany has put the topic on the G20 agenda.For consumers, the new world of digital financial services is full of promise: Pay with a click, take a loan with your phone, whenever you want, wherever you are.

Traditional bankers, on the other hand, are worried. And so are regulators. They fear that ultimately, the stability of the whole financial system might be at risk, as new service providers and startups (“fintechs”) threaten to disrupt this centuries-old industry.

Germany, which presides over this year’s meetings of the world’s leading economies (G20), has put the topic on the agenda of the G20. Part of that process was a two-day conference (25.-26.01.2017) at Biebrich Palace near Wiesbaden, where policy makers, central bankers, academics and industry specialists from numerous countries exchanged ideas on how to weather the upcoming storm.

Bank the unbankables

On the upside, the opportunities seem endless. Not only for consumers in rich countries, who can expect better, cheaper, and more convenient services, but especially for the poor in developing countries.

“Two billion people are still excluded from the financial system, that is 40 percent of the world’s adults,” said Queen Máxima of the Netherlands, who serves as the United Nations’ special advocate for inclusive finance for development, in her opening speech. “And 40 percent of small and medium-sized enterprises [SMEs] still don’t have any access to the financial services they need to grow, succeed, and employ more people,” she added.

Fintechs could change all that, and much faster than traditional banks. Mobile payment services, which only require a simple cell phone, are hugely popular in Africa and elsewhere. According to Queen Máxima, 700 million adults have gained access to financial accounts between 2011 and 2014.

Know the fine-print

But it is crucial that new customers are able to use these tools wisely, to avoid being burdened with debt. “In Kenya, for instance, seven out of 20 digital credit services have annual interest rates of more than 100 percent,” said Queen Máxima.

Even in rich countries, financial literacy remains a challenge. But even more pressing is the need to come up with binding rules for new providers of financial services. The G20 countries hope to find a common approach later this year.

“Our aim is to develop a set of common criteria for the regulatory treatment of fintechs,” said Jens Weidmann, president of the Deutsche Bundesbank (pictured above). “Fintechs should not base their business models on regulatory loopholes.”

Barbarians at the gate

The business model of banks and insurance companies is under threat as a growing number of fintechs is offering customers easier and more intuitive access to financial services. This is not necessarily bad, as competitors force incumbents to rethink their products.

But bankers complain of unfair conditions. “Why don’t banks run more risks?,” asked José Manuel González-Páramo, a former director of the European Central Bank (ECB) and now on the executive board of BBVA, a multinational Spanish banking group. “Because banks are subject to capital regulations that are not impinging on the decisions of many startups,” he added.

Regulators know they’re treading a fine line here. Too much regulation would kill many startups, hinder innovation, and stifle competition. Too little regulation could create risks, for consumers and the financial system as a whole.

“A certain degree of trial and error is completely acceptable, even from a regulatory point of view,” said Felix Hufeld, president of BaFin, the German financial supervisory authority. “Perfect security in such an innovative and quickly developing environment is impossible.”

But even this fly-by-sight approach eventually needs to come up with answers. Take blockchain, for example, the technology behind virtual currencies such as Bitcoin. Users can transfer money globally, almost in real time, and anonymously. The record of transactions is created by algorithms in a peer-to-peer network, no central authority is involved.

No central banks needed?

This approach completely bypasses banks and central banks, and has regulators scratching their heads. “Who owns the data?,” Hufeld asked. “And is data protection a logical concept in a world of decentral coding of data, like blockchain, or is it a contradiction in terms? We have no answers to that,” he added.

A currency out of reach for central banks – that’s the very essence of Bitcoin. “But if you have a fully decentralized system, and something goes wrong – who will then provide the liquidity?,” said Agustín Carstens, governor of the Central Bank of Mexico. “I think it’s very difficult to have trust without a central bank.”

So far, Bitcoin and other virtual currencies are too small to pose a serious threat to financial stability. But central banks in Germany and the UK are already testing how they can use the underlying technology for their purposes.

“If you look ahead, it is possible that virtual currencies and payment service providers could begin to displace traditional banking services,” said Mark Carney, governor of the Bank of England and chairman of the G20’s Financial Stability Board. “Too some extent, that would be positive. But if it goes too far, then you get a single-source risk.”

A risk that should of course be mitigated, if possible. As should other risks like cyber-security, tax evasion, the abuse of data, and the expected loss of jobs. Some studies see 40 percent of all jobs in the industry at risk.

Whatever the outcome, German finance minister Wolfgang Schäuble believes the G20 is the perfect forum for this discussion. “We cannot tackle these problems on the level of nation states,” Schäuble said. “The only way is international cooperation and governance. And in this regard, I think we have made good progress.”

January 27, 2017
Can Egypt secure $7bn in refugee support?

Refugees have become the major focus of the international community at the United Nations (UN) general assembly this week, with calls for unified action on the greatest refugee crisis since World War II. Calls for increased aid to countries hosting refugees have put Egypt in the limelight after President Abdel Fattah Al-Sisi announced at the G20 summit that Egypt hosts up to five million refugees. With the change of focus in the international community to supporting nations over individuals, Egypt has the potential to receive billions in aid.

At the UN general assembly, Al-Sisi highlighted the government’s commitment to ending the migrant flow from North Africa to southern Europe. “We are working on providing [refugees] with respectable living conditions without isolating them in camps,” Al-Sisi said.

Hisham Badr, Egypt’s assistant foreign minister, stated that the increase in refugees is the result of the Turkey-European Union (EU) deal, which effectively redirected refugees from Turkey to North Africa. Likely, Egypt will attempt to position itself as the main actor in mitigating the refugee crisis.

On Tuesday, Austrian chancellor Christian Kern said that the EU should forge an agreement with Egypt, similar to Turkey’s, where the EU provides funds to Cairo to stem the flow of migrants northward. “Austria fears asylum seekers could start coming to the EU from Egypt next year,” Kern told the EU Observer.

Under the EU-Turkey deal, the EU has promised $6.7bn and political concessions, which include Schengen travel from Turkey to Europe, a long sought objective of the Erdoğan government, if Turkey takes back migrants and refugees who often find themselves in detention centres. Turkish president Recep Tayyip Erdoğan metaphorically held a gun to European leaders’ heads, pushing them to choose to either accept the demands of the Turkish government, or watch their political careers burn if Turkey releases migrants into Europe.

Against Turkey, Egypt looks like an even-headed alternative. Since Turkey’s failed coup in July, more than 60,000 people have been arrested or removed from their jobs, including journalists, teachers, professors, judges, and civil servants.

The UN response plan to the refugee crisis since 2014 has been to prioritise human and economic development rather than humanitarianism for two reasons. Humanitarian spending is unsustainable, while investing in community development to reduce permanent aid dependency is considered the necessary route. This is in order to reduce tensions between local communities, which already suffer from high poverty, inequality, and unemployment, by attempting to give locals some added value from the presence of refugees. The United Nations High Commissioner For Refugees (UNHCR) in Egypt stated in a February report that they only receive 3% of the needed funding for refugee support for the 200,000 refugees that are officially registered.

The International Monetary Fund (IMF) released a report on Saturday detailing the economic cost of the refugee crisis on the Middle East and North Africa.

However, they did not deviate from their usual calls of subsidy reduction, private sector promotion, preventing deficit spending, monetary and trade liberalisation, and economic restructuring─all policies that were deferred in the Marshall Plan that rebuilt Europe after World War II. European nations were allowed to defer free market reforms until after the political and economic crisis had been addressed, not through austerity, but through massive public spending and welfare, full employment, higher wages, and progressive taxation.

Unfortunately, the institutions that the IMF designates as most important to preserve are fiscal institutions and central banks. The IMF also calls for the scaling back of state intervention in the economy, such as price controls, exchange, and capital controls. “Efforts to phase out interventionist regulations thus often become a priority,” it said in the report.

September 21, 2016
Good relations: Egypt’s chance for a seat on China’s development train

The year 2014 was remarkable due to a number of reasons. One of its most important traits was one that received little attention, but changed the geopolitical outlook the world has gotten used to for decades. In 2014, the United States could no longer claim to be the world’s largest economic power.

The torch was passed on to China, where it will likely remain for a very long time, if not forever. In doing so, China reclaimed a position it had held throughout most of history.

The Chinese dragon became the most powerful economy, leaving the world in wonder and bewilderment on how a country could develop so fast.

Egypt and China have similarities, and when their ties strengthen, Egypt has a good chance to benefit from the dragon, either by attracting investment or transferring technology and know-how.

Last year, President Abdel Fattah Al-Sisi visited China and signed a number of cooperation agreements that did not really alter Egypt’s reality.

But how can Egypt benefit from the biggest economy in the world? And does the government know how to efficiently allocate its good relations with the Asian dragon in order to bring Egypt forward?

China is facing a problem because of the global recession, which affected their exports negatively
(AFP Photo)

What makes China an economic dragon?

In 1980, China’s GDP was just under $200bn—roughly the same size as the economy of the much smaller Taiwan. Today, China is a massive $10tr behemoth while Taiwan’s annual GDP is $495bn. Over the last three decades, as Beijing’s leaders developed their “socialist market economy”, the average annual growth rate has been about 10% a year. No other large economy in history has grown so fast, for so long until it became the biggest economy in the world.

But how could this be?

Aliaa Mamdouh, a former economist at CI Capital, said that China developed its economy mainly through industry and exports.

She said that China created a rise in their industry in every field, developing how to manufacture and how to compete with western products that were more developed and had special technologies.

Now at 23% of Chinese national income, exports have been the mainstay of Chinese growth since the early 1980s. However, exports could never have achieved that status without subsidised credit from the government-controlled banking system and an artificially low exchange rate. Interestingly, China combined this quasi-mercantilist approach with considerable openness to foreign direct investment (FDI).

The problem is that the world will no longer absorb Chinese exports growing at 20% annually, and the credit subsidies have led to overcapacity among exporting firms.

Mamdouh believes that China is facing a problem because of the global recession, which affected their exports negatively.

She stated that China’s government noticed this, which caused them to construct a plan to count on their local market more and not solely depend on exports.

If there are similarities between Egypt and China, it would only be in the state-owned companies, which China made more productive and profitable, unlike Egypt.

China provides subsidies for their investors in the private sector and for state-owned companies, and Egypt could do that, she added.

In China, state-owned enterprises (SOEs) exist in dozens of sectors, employing tens of millions of people and generating roughly 40% of China’s GDP.

Chinese President Xi Jinping has launched a wide-reaching anti-corruption campaign—something that we really need to improve our economic climate, Mamdouh said.

She believes that developing state-owned companies in the way China did would not happen without fighting the corruption that has led them into failing to turn a profit.

The government of Egypt needs to increase industrial land areas, she noted, adding that investors can hardly find land on which to begin their projects.

She said that with all the problems investors face in order to start their investments legally, it would be difficult for Egypt to mimic China.

The poor investment climate in Egypt would not help the government attract investment from China either

How could Egypt benefit from China’s invitation to G20?

When Chinese president Xi Jinping invited President Abdel Fattah Al-Sisi to participate in the G20 summit held in Hangzhou, experts said that the invitation is a chance for Egypt to deepen its relations with the largest economy in the world.

Unfortunately, the government did not hold talks with investors before participating in order to understand how Egyptian investors could promote their industry through cooperation with Chinese businessmen.

Moreover, the poor investment climate in Egypt would not help the government attract investment from China either.

Chinese companies are already working on construction in the New Administrative Capital, mainly in infrastructure projects, according to CEO of Multiples Group Omar El-Shenety.

El-Shenety believes that the reality of the situation does not match the government’s propaganda. He explained that investors and businessmen from China would not invest knowing that Egypt has a lot of problems related to its investment climate.

He stated that government’s aspiration to attract investment from China, or any other country, will not be realised unless problems such as the exchange rate, operating licences, and the high cost of land are fixed.

This is why hardly any foreign direct investment had entered Egypt in the past two years, he noted. Chinese investors that intend to invest in Egypt are postponing the move until the Egyptian government fixes everything.

He said that it would have been better if Egypt asked China to become more involved in infrastructure projects, such as power generators or building electricity plants.

El-Shenety wonders, if the government is moving towards liberalisation of the energy market, then why did it ask Siemens and General-Electric to build governmental-owned electricity plants? He believes that if investors from China had built and operated these plants it would have saved Egypt a lot of money, especially as China provides good offers and facilitates payment for its projects.

He stated that the government’s role must be involved in electricity distribution only.

If Egypt really wants to benefit from China, it must obtain knowledge of current technology being used in fields such as the auto industry, he said, emphasising that the government has said again and again that it plans to start locally manufacturing cars in the near future rather than solely assembly operations.

He believes that only China would be able to help Egypt manufacture cars locally at low prices that Egyptians could afford, compared to cars of European origin.

We could also benefit from China in the textile industry as Egypt is suffering from the expansion of that industry there, he added. If Egypt cooperates with China in the textile industry, it may promote the industry across the whole of Egypt.

On the other hand, investors from Egypt assured that if the government had cooperated with Egypt’s private sector before going to China, this would have been a great benefit to both sides.

Head of 10th of Ramadan City Investors Association Samir Aref said that China is, economically, the leading country in the world, adding that its rise mainly depended on small- and medium-sized enterprises (SMEs) and micro-enterprises. Therefore, Egypt could take advantage of its experience in this field.

Currently, the government’s priority for its ties with China is to attract tourists and direct investments, and to trade experience, expertise, and technology.

Head of the SMEs association Alaa El-Sakty said that Egypt can benefit from China in everything.

Investors could have deepened bilateral ties if the government had cared to hold talks with us before participating in the summit, he added.

He believes that Egypt could develop any industry if it cooperated with China, especially the textile industry. El-Sakty added that Chinese investors are the best ones for Egypt nowadays, as it’s already injecting investments in Africa, which could attract some of them.

China’s investments in Egypt are approximately $550bn, according to the General Authority for Investment and Free Zones.

September 6, 2016
Al-Sisi gives speech, holds bilateral meeting with Putin in G20

President Abdel Fattah Al-Sisi gave a speech at the G20 summit on Monday, praising China’s presidency for prioritising the importance of industry in Africa and less developed countries.

The Egyptian president also welcomed the inclusive development plan set by G20 that is scheduled to be completed by 2030. During his speech, he said that Egypt is looking forward to collaboration among the international community to achieve the targets of this plan. Al-Sisi stressed that Egypt acts as a positive link between Africa and the world.

Al-Sisi also praised the efforts exerted during the summit to tackle the repercussions of the latest economic developments in the employment field, in order to be able to provide proper work and improve the labour market according to the principles of social justice.

The Egyptian president met with his Russian counterpart Vladimir Putin to discuss bilateral cooperation between the two countries over the past two years, particularly in the nuclear energy sector and the Russian industrial zone.

The two presidents agreed on sending a Russian delegation to Egypt within the next few days to finalise all needed technical studies to resume direct flights from Russia to Egypt.

Al-Sisi met with Saudi Arabia’s deputy crown prince Mohamed bin Salman, according to a presidential statement. During the meeting, the president stated that the two countries should work on accomplishing the results of the latest visit of Saudi King Salman Bin Abdel Aziz in April. Al-Sisi and Salman had signed the maritime demarcation deal, transferring the sovereignty of the Red Sea islands Tiran and Sanafir from Egypt to Saudi Arabia.

Al-Sisi also met with his French counterpart François Hollande, discussing both internal and regional developments. Hollande said during the meeting that France supports the economic reform programme adopted by Egypt, adding that he hopes this plan achieves promising results.

The two presidents discussed the Palestinian-Israeli conflict and the initiatives taken by several countries to solve it.

German chancellor Angela Merkel met with Al-Sisi, praising the preliminary agreement Egypt had reached with the International Monetary Fund (IMF) on a $12bn loan over three years. She also highlighted that Germany fully supports Egypt’s economic reform programme.

Al-Sisi is participating in the G20 summit for the first time since he took office in 2014, after he received an invitation from Chinese president Xi Jinping. The last summit took place in Turkey in November 2015.

September 5, 2016
G20 leaders meet in China to tackle economy, environment

The leaders of the world’s most important nations are in China this weekend for the annual G20 meeting. Among the hopes for this year’s summit: New China-US joint commitments to fight climate change could be on the menu.
The leaders of the 20 most important countries in the world are meeting on September 4-5 in the Chinese city of Hangzhou as part of this year’s Group of 20 (G20) summit.

Hangzhou, located not far from Shanghai, is a city in the eastern province of Zhejiang, not far inland from Shanhai. It is renowned for its beautiful natural scenery, and boasts an ancient history, with thriving tourism as well as high-tech industries.

This is the first time China is hosting the summit, and like during other major international events the country has previously organized, Beijing is pulling out all the stops to make it a success and showcase China’s growing clout on the world stage.

The government shut down local factories to generate cleaner air for the duration of the meeting, and restricted car traffic. Among other things, the government saw to it that 20,000 new electric vehicles were allocated to Hangzhou, and even distributed $1.5 billion in vouchers to persuade local residents to leave the city for a few days. Tens of thousands of locals were recruited to look after logistics and make sure the visiting dignitaries and their entourages would be well looked after.

Big talk

The G20 meeting offers the presidents and prime ministers a chance to discuss and coordinate their countries’ policies on the major economic and geopolitical problems confronting the world.

Economic issues are set to dominate the agenda, with the global economy continuing to be plagued by tepid recovery and stagnant job growth. Concerns are growing about increasing opposition to free trade in many industrialized nations in Europe and North America – and similarly, there are perceptions in Germany and Europe that China is adopting protectionist measures and making it increasingly difficult for Western corporations to invest and do business in China.

In the run-up to the summit, Christine Lagarde, the head of the International Monetary Fund (IMF), warned about the “low-growth trap” facing the world, pointing to problems such as high debt, weak demand, eroding work forces and labor skills, weakening incentives for investment, and slowing productivity.

This, she added, “is feeding a political climate in which reforms stall and countries resort to inward-looking policies.”

No breakthroughs?

Still, the summit is unlikely to produce any major reform measures, as member states remain divided over the steps needed to promote economic competitiveness and job creation. The leaders might merely renew their promises to use tax and spending policies to reinvigorate the world economy, but the chances of a meaningful new pro-growth push look slim.

“This meeting – the first since Brexit and the US presidential primaries – should send a clear message that world leaders have heard people’s concerns about globalization, and are taking steps to better understand and address them,” Mark Melatos, associate professor at the University of Sydney, told Reuters.

“The risk is that nothing much will be achieved,” he warned. “More platitudes about the benefits of global trade and investment will ring hollow.”

Chinese leaders, however, are expected to soothe worries related to their country’s growth prospects, underlining that the world’s second-biggest economy continues to be in good shape despite the recent slowdown in its pace of expansion.

According to its government’s statistics, China’s economy expanded 6.7 percent year-on-year in the three months through June. While that’s significantly slower than the double-digit growth it had experienced in recent decades, the rate seems to have stabilized after the recent stock market turmoil, and is much higher than anywhere in Europe and North America.

It should be noted in this context, however, that many experts have cast doubt on the reliability of official GDP statistics, including some Chinese officials. Some investors look at figures like total containers leaving Chinese ports, or total energy consumption, rather than official GDP growth figures, when assessing the state of the country’s economy.

In any case, China’s policymakers are likely to use the opportunity of the G20 summit to communicate with their counterparts about their financial policies and reforms, which they say are intended to reconfigure the nation from being an export-reliant manufacturing economy to one driven more by domestic demand, with a larger share of GDP generated by services rather than manufacturing than has been the case to date.

The final trip

For Barack Obama, this year’s summit will be his last as US president, and gives him a chance to reflect upon his economic record. He will also use the trip to Asia to promote the Trans-Pacific Partnership (TPP), a 12-nation Pacific comprehensive trade and investment regulation deal that excludes China – a deal in which he invested a lot of political capital, and which is facing strong headwinds amid rising anti-globalisation sentiment in the US, where many politicians are admitting that previous such deals did expand trade, but at heavy cost to domestic US manufacturing industries and blue-collar workers.

For the outgoing president, the visit will also be an opportunity to highlight an eight-year effort to put the environment and tackling climate change higher on the political agenda.

At Hangzhou, China and the US are also expected to give the Paris climate change agreement a big push forward, including potentially jointly announcing their ratification of the deal, and new action to curb fossil fuel subsidies, experts say.

With China – which has shown growing international leadership on climate change – hosting the summit for the first time, “we can expect climate and energy to be front and centre”, said Joanna Lewis, a specialist at Georgetown University on energy and environmental issues in China.

China has set up a “green finance” mechanism that it intends to unveil at the summit as well.

Saving steel producers

The meeting in Hangzhou is the first for G20 leaders since the UK voted in June to leave the European Union. Leaders are expected to discuss the fallout with British Prime Minister Teresa May on the sidelines of the summit.

Another issue likely on the agenda is the state of the steel industry, which has been gripped by a profound crisis due to a massive production glut in recent years. This has caused plant shutdowns and widespread job cuts in Europe and the US, triggering accusations against countries like China that they’ve been engaged in ‘dumping’ subsidized steel on the global steel market at a loss, and depressing prices deliberately in order to drive competitors in other countries out of business.

The EU even imposed anti-dumping duties on steel products emanating from China and Russia last month. And there are growing calls for curbing the excess capacity and stabilizing the market.

Monetary policy will also be a subject of conversation, with many calling for increased fiscal stimulus measures to kickstart growth. Furthermore, as concerns grow about over-reliance on central banks to deal with the hangover of the financial crisis, there are some tentative signs of a more relaxed approach to public spending.

The EU has taken a softer stance with some member states, including France and Portugal, over its budget rules. And Britain, which until recently wanted to turn its big deficit into a surplus by 2020, is considering fiscal stimulus to offset the shock caused by its Brexit vote.

Of all the issues on the table at Hangzhou, perhaps the one that’s of longest-term significance is whether the US and China, the number one and two carbon polluters, can develop a lasting partnership to get serious about making the necessary investments and regulatory reforms needed to drive emissions down sharply, and quickly enough to prevent catastrophic climate changes over the coming couple of decades.

sri/nz (AFP, AP, Reuters, dpa)

September 3, 2016
Italy’s PM Renzi asks for time

At the annual Ambrosetti Forum gathering of elites at Lake Como, Italian PM Renzi told political and economic influentials that Italy needs more time to reform.
Italy’s prime minister Matteo Renzi was already on his way to China for the G20 summit, but this Friday he didn’t want to pass up the opportunity to drop in on a gathering of influential elites to discuss the Italian economy. So he flew to the shores of Lake Como on a state helicopter for a couple of hours, and gave a talk to the annual Ambrosetti gathering.

This year, the rather anodyne title of the event was: “Scenarios of today and tomorrow for competitive strategies.” But the guest list, more than the headline title, was the real draw. The European House – Ambrosetti, which has become one of the most influential think tanks in Europe, always boasts a high-calibre participants list. Helmut Schmidt came to Lake Como for Ambrosetti gatherings eight times.

Villa d’Este (pictured at top) is one of the places, like Davos, where many leading politicians, business leaders and statesmen come together once a year to rub noses and talk about the state of the economy – and of the world.

Europe has to deliver answers

“In my opinion, in 2016, the problem is not the economy”, Renzi said at the beginning of his speech, and claimed that things are slowly recovering economically. Politically, however, the situation is entirely different, he said, given these times of terror, refugee crisis and war. That is where Europe needs to deliver convincing answers. “Europe should have its own strong messages regarding politics or culture”, he emphasized, though he still seemed to be seeking answers himself.

Discussions behind closed doors

Outside, Italian police speedboats patrolled the lake; inside, the discussions were heated. A lot of what was said is confidential and may not be quoted. Prince Turki Al-Faisal, a member of the Saudi royal family, talked about political risks in the Arab region, which will have economic consequences. The former Israeli president Shimon Peres was among the speakers, as was Wu Hongbo, Under-Secretary-General of the UN, as well as a raft of prominent economists. Among those in attendance were ministers, EU commissioners, members of the European Central Bank, and CEOs of major corporations. For two and a half days, they discussed global risks and impacts on business, the future of the Euro, and leadership, with an appetite for exchanges of ideas much in evidence.

Italy’s troubles

But then, having said it wasn’t the main issue, Matteo Renzi focused on the economic situation in Italy after all. “Tomorrow the headlines in the newspapers about Italy will be negative”, he said. The Italian National Institute of Statistics (ISTAT) reported on Friday that Italy’s economy did not grow at all during the second quarter. And even during the entire first half of 2016, the country’s economic growth rate was only 0.7%.

Talk of stagnation, however, angered Renzi. After all, those figures were much better than they were just a year or two ago. Thanks to his government’s labor market reforms, more than 500,000 new jobs have been created, he said. But “getting better does not mean that we are doing well,” he acknowledged self-critically.

He kept bringing up Germany, too. He said that there, necessary reforms were initiated many years ago, which is why the German economy is doing so well now.

Not everything is positive about Germany’s economy

That’s a compliment that Marcel Fratzscher, president of the German Institute for Economic Research (DIW), can only share conditionally. Fratzscher was invited to Ambrosetti to talk about Europe’s economic prospects.

“Compared to other European countries, Germany is indeed in an excellent position,” he told DW. “Italy is the big problem child, with a massive slump in its economic performance since 2008, massive debt, and a big problem with its banks. However, we should be more modest in Germany. We have huge problems in terms of economic policy as well, and low private and public investment. So a bit of realism and modesty would serve Germany well.”

Brexit could lead to growth

But what’s next for Italy?

“We need time”, Italy’s prime minister tells the audience, and added: “The glass is half full not half empty.”

Renzi tried to exude optimism. He even said he saw opportunities in Brexit, the planned exit of the United Kingdom from the EU. That’s because after Brexit, the European Economic Area would be even more important than before. He said there will be opportunities for growth after the British are no longer on board, but that he would rather not explain that in more detail at present.

G20 summit awaits

Outside, the sun glistened on gorgeous Lake Como. Matteo Renzi only gave it a passing glance. He would have liked to stay, he said, and everyone, not only the Italians, know how keen their prime minister always is on a good debate. But the helicopter lifted off, bringing him to an airfield from where he could board a jet and fly to Hangzhou to attend the G20 summit on the weekend of September 4-5. The topic there would be the same: The state of the world economy, and the risks facing the world in a time of multiple crises.

September 3, 2016
European businesses criticize unfair China-EU relationship

An organization representing European business in China has called for less restrictive market access in the country. The criticism comes as the world’s major economies gear up for the next G20 summit in Hangzhou.
The European Union Chamber of Commerce in China called on Beijing to follow through with its proposed economic reforms and lift restrictions on foreign investment, as the country prepares to host the G20 summit for the first time starting this weekend.

“European business continues to hear reform commitments aimed at affording foreign-invested enterprises more market access,” the European Chamber said in an annual report published on Thursday. “As welcome as these are, they have been heard before: it is hoped that words will now be paired with actions.”

Criticism of the country’s business practices has mounted as Chinese companies, motivated by a slowing economy, have sought out desirable European “targets,” or potential acquisitions. Chinese foreign direct investment (FDI) in Europe hit an all-time high of $23 billion (20.6 billion euros) in 2015, while 2016 has already seen a number of high-profile acquisitions of European firms.

Lack of balance

Meanwhile, European investment in China continues to be stymied by prohibitive state controls, the European Chamber said. While Chinese companies were able to engage in acquisitions such as Fosun International’s deal to purchase German bank Hauck & Aufhäuser in 2015 and Midea’s purchase of German manufacturer Kuka earlier this year, European firms continue to be prevented from acquiring such high-profile brands in China.

During the Third Plenum in 2013, the Communist Party leadership vowed “to allow the market to play a ‘decisive role’ in the allocation of resources.” Since then, however, Western businesses have seen little indication that China wants to open up free-market access.

This is reflected in the country’s most recent Five-Year Plan, approved in March, which outlines the government’s goals for the economy for the next half-decade. The plan puts more emphasis on state-owned enterprises (SOE) playing a hand in the economy, apparently contradicting the desire to let the markets play a bigger role.

Plan should be ‘dusted off’

China, for its part, has argued in the past that its restrictive measures are a way to keep its most competitive firms in check. But the European Chamber said such policies could prove to be harmful for all parties, and that Beijing should “dust off” its old plan and free up the market.

“While Europe welcomes foreign investment, this lack of reciprocity is unsustainable and could lead to protectionism and increased tension,” the organization said.

China will host the G20 summit beginning on Sunday amid growing pessimism for free trade agreements and open markets. Earlier this week, the International Monetary Fund (IMF) released its own report, in which it called on the G20 to do more to promote globalization.

September 3, 2016
G20’s green transition?

As the G20 summit takes place in Huangzhou, China, not only business and finance will be discussed – climate change is also high on the agenda, due to the growing financial risks that climate change present.
For nearly two decades, the G20 summit, this year taking place in Huangzhou, China, on Sunday and Monday (September 4 and 5, 2016), has acted as an informal gathering of the most influential industrial and developing countries (Group of 20), including the European Union, United States and China.

Although the original purpose of the G20 summit was for countries to exchange information and advise each other on financial issues, this summit in China features something new: “For the first time ever, G20 in its statement mentioned climate change as a key topic,” said Lina Li of Adelphi, an independent think tank on climate, environment and development topics.

Climate change, a hot topic

G20 states produce 85 percent of global economic output and represent two-thirds of the world’s population. They also emit around 80 percent of global energy-related greenhouse gas emissions.

“G20 countries recognize that they can play a very critical role in defining the future of environmental protection and climate protection of the world,” Li told DW.

Since 2015, energy ministers of G20 countries have been meeting regularly – their last gathering was in Beijing at the end of June this year, where they discussed the future of energy and reduction of greenhouse gases.

This point becomes all the more poignant in light of a recent study by Climate Transparency, which sounded alarm bells over plans for new coal plants.

“Even if only a small fraction of the planned coal plants were built, it would become virtually impossible to keep (global) temperature increase below the 2 degrees Celsius limit, or down to 1.5 degrees Celsius,” the report states.

Linking energy and climate policy

Also criticized in the report is Germany. Although the country has made great strides in transitioning to renewables with its Energiewende, and has acted as a role model for climate finance, it still generates a quarter of its electricity from burning coal.

The report also brought attention to continued subsidies for fossil fuels, particularly in the US and China.

Sonja Peterson, science director with the Kiel Institute for the World Economy (IFW) in Germany, points out that a pledge to phase out fossil fuel subsidies has been on the G20 agenda since 2009.

“That would be an important measure to actually reduce emissions,” Peterson told DW.

China is likely to reach peak emissions by 2030, and the US has committed to emissions reductions of 26 to 28 percent less than 2005 levels by 2025. The two countries have been pushing the issue forward since 2014.

China’s climate-conscious G20 leadership

A shift came about for China during the 2009 climate conference in Copenhagen, Lina Li believes. Before then, China viewed itself as a developing country, less responsible for climate issues than industrialized countries.

“Nowadays, China is also recognized as an emerging economy. It has certain responsibilities, also for this global challenge and to contribute to solutions,” Li said.

Also the IFW praised China in its role in the G20 presidency, which rotates yearly. “It’s introduced emissions trading systems in various regions,” Peterson said, adding that by 2017 this should be nationally implemented.

“China has in the meantime taken the climate issue very seriously, and has accomplished much at the national level,” she added.

Internationally, however, China has demonstrated less leadership. Responsible for a quarter of global emissions, the country still hasn’t set concrete emission reduction goals.

If the US and China, as the two major players in terms of emissions, don’t both carry forward climate policy, Peterson believes there’s little point to further climate protection efforts.

Shadow of the Paris Agreement

Despite the hesitancy of the People’s Republic in committing to concrete goals, green groups still expect China and the US, ahead of the G20 summit, to jointly announce their ratification of the Paris Agreement on climate change agreed at the end of last year.

Chinese Vice-President Li Yuanchao had already announced this intention at a signing ceremony in New York in April this year. There, 175 states signed the agreement.

But the Paris Agreement will only actually come into effect when at least 55 countries – responsible for at least 55 percent of emissions – have ratified it. To date, only 24 of 197 parties have actually ratified the pact, covering just over 1 percent of emissions.

China and the US together produce about 40 percent of emissions. With Europe’s expected ratification, this would cover the requirement.

Li, however, is skeptical that China will ratify the treaty before the G20, and that this may rather happen toward the end of the year. “This would be a very good gesture from the Chinese side,” Li said.

Peterson believes the Paris Agreement won’t fail like the Kyoto Protocol did – especially because each country is able to determine its own contribution under the Paris framework.

“That would be a first recommendation for G20 countries: Move forward so the treaty can formally come into effect,” she said.

G20’s green transition

This year’s G20 summit marks a change in thinking, both experts agree. Climate change is emerging as a key global problem, which is being discussed at greater depth internationally, including across the financial sector.

Particularly the risks of environmental problems, including climate change, are beginning to be factored into financial decision-making, also to support wider mobilization of green finance.

But it’s still not enough, Li thinks. “This is really a good thing that G20 could pick up across its different workstreams – linking the need for change of finance and investment for a green future.”

September 3, 2016
IMF chief Lagarde warns against ‘low-growth trap’

Issuing a stark warning ahead of this year’s G20 summit, the head of the International Monetary Fund, Chrstine Lagarde has called on world leaders to take decisive action to revitalize the sluggish global economy.
Forceful economic reforms are needed in the face of global economic weakness and calls for isolationism, IMF Managing Director Lagarde said on Thursday, in a challenge to Group of 20 leaders as they prepare to gather in China this weekend.

“This meeting comes at an important moment for the global economy,” Lagarde said. “The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time.”

Lagarde also noted that as of 2016, global economic growth had stagnated for five years below the 3.7 percent average that prevailed between 1990 and 2007. The weak global growth, coupled with rising economic inequality, “is feeding a political climate in which reforms stall and countries resort to inward-looking policies,” she pointed out.

The comments come ahead of this year’s G20 summit, which will take place from Sunday in the Chinese city of Hangzhou.

No breakthroughs expected

But analysts say the summit is unlikely to achieve a breakthrough, given that it occurs in the absence of a crisis which could prod governments to take action.

Lagarde said the world faced a “low-growth trap” – high debt, weak demand, eroding work forces and labor skills, weakening incentives for investment and slowing productivity.

The Washington-based IMF said average growth rates in the G20 member countries of 1.5 percent look to remain a percentage point below long-term averages in the medium term.

US growth would also likely be weaker than previously expected in 2016, IMF economists said in a report. The report’s chief author, IMF economist Helge Berger, told reporters in Washington the organization expected to downgrade its US growth forecast in light of the poor performance seen in the first half of this year.

US President Barack Obama, meanwhile, will use the trip to Asia to promote a 12-nation Pacific trade deal that is also facing strong headwinds amid a rising anti-trade sentiment.

sri/cjc (AFP, dpa)

September 3, 2016