Goodbye to growth
April 21, 2013
German Finance Minister Wolfgang Schäuble at the end of the IMF's and World Bank's spring meeting in Washington described the situation concerning the euro as "less nervous, less concerned" than one or two years ago.
Concerns about a breakup of the eurozone have diminished, but the economic situation in Europe remains weak, and that makes many nervous. The IMF expects a slight contraction of the eurozone economy for this year, followed by a slight increase of 1.1 percent next year.
Not much more than that can be expected of Europe in the coming years, Schäuble said, adding, "Europe will deliver sustainable, long-term growth rates in the order of 1 to 1.5 percent."
Schäuble said stability is more important for Europeans than growth at the moment and that countries that put higher European growth rates in the forefront run the risk of neglecting to address their national problems.
Opposition from Nigeria and US
"With all due respect to the words of the minister," Nigerian Finance Minister Ngozi Okonjo-Iweala told DW, "the countries of the world are strongly interdependent. What happens in one part of the world influences the development in another part. The international community should therefore try to work together to promote growth."
The new US treasury secretary, Jacob Lew, told the IMF steering committee that more demand in Europe is crucial for the world economy's growth. A rapidly growing Europe, Lew said, would demand more products and services from other parts of the world, thus contributing to global growth.
Okonjo-Iweala, however, said that Nigeria and other African countries did not want to rely on demand from industrialized countries. Rather, they wanted to seize the opportunities of the African market, with its more than 800 million people and a growing middle class.
"If we break down the barriers that inhibit trade within Africa, then we increase our own demand and make us less dependent on others," she said.
Too much money
Dependence on international capital flows could, however, represent a growing problem. Interest rates in Japan, the United States and Europe are close to 0 percent, while the major central banks are pumping billions into the markets through bond-buying programs - in the hope of stimulating the economy. As a consequence, there are huge capital flows in search of returns - including in many developing and emerging countries.
"It is clear that the longer an ultra-expansionary monetary policy is pursued, the more the risks increase," German Central Bank President Jens Weidmann said.
Weidmann named exchange rate distortions, asset bubbles and excessive debt as risks. In addition, developing and emerging countries would be particularly vulnerable if money flows suddenly disappeared because of rising interest rates.
For the first time, finance ministers at the G20 meeting talked about the creation of global liquidity indicators to better monitor these financial flows.
Officially, no dispute
Schäuble emphasized that he saw no dispute over the pace of reform. "The deficit reduction in the eurozone must continue," he said. "It is not a German position, it is a common position. We are totally united."
While reforms are needed and must be made, they must also be balanced and not take the air out of the economy, Schäuble said, adding that such provisions have already been made clear in the European Stability and Growth Pact.
IMF head Christine Lagarde said Spain needs more time for its reforms, while the final declaration speaks of a balance between economic development and reform.
IMF reform without progress
However, there was no progress in at the meeting towards reforming the IMF itself. In 2010, a change in the equity and voting rights of member countries was agreed to. This was meant to give emerging countries such as China, India and Brazil more influence in the IMF. However, the fractious United States has refused to ratify the reform.
The next review of voting rights, which is meant to be completed by January 2014, will also slow down because of "resistance to change on the part of overrepresented European countries," Brazilian Finance Minister Guido Mantega said.
"In other words, America is unable and Europe unwilling to follow through with agreed reforms," Mantega said. "The institution's major shareholders are gambling, perhaps unwittingly, with the IMF's legitimacy and credibility."