Europe is in favour of setting an economic growth target for the world’s 20 biggest developing and advanced economies (G20), but only if they agree on bold reforms, the European Union’s Economic and Monetary Affairs Commissioner Olli Rehn said.
G20 finance ministers and central bank governors are meeting in Australia on Saturday (22 February) and Sunday (23 February) to find ways to boost global economic growth by focusing on investment, competitiveness, trade and employment.
Australian Treasurer Joe Hockey said support was building for setting a numerical goal for growth, but Rehn said it only made sense if reforms got equal support.
“I see that economic growth is a consequence of right policies and global coordination. So yes, we need a bold growth target, but only on the condition that we can also agree on bold economic reforms and sound economic policies,” Rehn said.
“That is what this G20 is about,” he told Reuters in an interview on the sidelines of the meeting.
He said the growth target discussions were based on an IMF study which envisaged boosting growth by 0.5 percent of GDP annually over the current projections.
But to get such faster global growth, Rehn said, G20 countries that have a current account surplus need to boost domestic demand and investment, while those that run a deficit have to make their public finances sustainable, create jobs and become more competitive.
“Once you agree on that, it is meaningful to have a bold growth target in the world economy,” Rehn said.
He said reforms were also the best defence against the financial market turmoil which shook many emerging market economies at the start of the year.
Some of the affected countries blamed the market volatility, which forced interest rate rises in Turkey, South Africa, India and Brazil, on the policy of the Federal Reserve to start reducing its monetary stimulus to the US economy.
But Rehn said that past policy choices in the emerging markets themselves were mainly behind their troubles now.
“Some economies that have been better prepared are doing better, also in the context of the recent financial market turbulence, while those that have been worse prepared are facing deeper turbulence and more serious challenges,” he said.
“For instance, the European emerging markets — the central and eastern European economies, have by and large been shielded from the recent turbulence … mainly because they have done the right policy choice in the past, learning the lessons of the 1990s,” Rehn said.
To make sure that G20 countries implement what they pledge, reform progress could be monitored by the International Monetary Fund and the Organisation for Economic Cooperation and Development (OECD), Rehn said.
“I believe that we will see further evolution of international policy coordination,” he said, noting that Europe’s economic governance model, which coordinates policies of 28 different countries, could serve as a benchmark.
“The G20 can benchmark its coordination and country surveillance on Europe, where countries have agreed to pool their sovereignties to strengthen economic policy coordination. We are ready to share our experiences,” Rehn said.
He said the G20 financial leaders should send a message to calm markets that they were ready to work together on global financial stability.
“It is of paramount importance that we reiterate our commitment to cooperate to ensure sustained and stronger growth in the global economy, which also requires some policy coordination in monetary policy,” Rehn said.
“The preparatory discussions we have had so far were constructive and bode well for a cooperative spirit as regards economic policy coordination,” he said.
source: Reuters/ image source: Griffith University