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Mihaljek, Dubravko

Newsletter nr. 40, May 2009. The financial furmoil in central and eastern Europe and fiscal policy in Croatia

Paczynski, Wojciech

CASE Network Studies and Analyses
No. 382 European Neighbourhood Policy and economic reforms in the eastern neighbourhood

Getmanchuk, Alyona

European Focus No. 1 (September 04, 2009) 
Facade Europeanization

Hollo, Daniel

Papp, Monika

Assessing household credit risk: evidence from a household survey

Kyseliova, Yulia

The 2008 political year: review without lessons...

Shymanovich, Gleb

English

Belarus external debt: sustaining levels in a time of global crisis

Simoska, Emilija

Gaber, Natasa

Jovevska, Aneta et al

How inclusive is the Macedonian society?

Sonin, Konstantin

  
A Big Success for the G20 
Global summits raise expectations of finding global solutions. As a rule, though, that usually doesn't happen.  
 
But last week's meeting of the Group of 20 in London ended successfully for a change. The most important 
result was not the $1 trillion the International Monetary Fund allocated to help fight the crisis, most of which will 
help developing countries that have been hit hard by fluctuations in the exchange rates of their national 
currencies.  
 
Most significant, the meeting demonstrated that the world remains united. Government leaders, although 
primarily concerned about their own economies, realize the danger of adopting protectionist measures as a 
knee-jerk reaction to the crisis. For us, the most important result is that Russia reaffirmed its role as a part of 
the larger world order. 
 
Meanwhile, there was no shortage of disagreements at the summit. European leaders, especially from France 
and Germany, offered resistance to the U.S. plan to stimulate demand through government spending, but their 
opposition did not stem from geopolitical considerations. In European countries, where the labor market enjoys 
more protection than in the United States, consumption does not fall as steeply when gross domestic product 
falls, and the need to stimulate demand is therefore lower. The lack of flexibility in the European labor market 
might also play a negative role because it slows the ability of European countries to make the transition toward 
growth.  
But for now, the United States is feeling the effects of the crisis more than Europe is. One reason for this: 
European governments have not yet fully realized the scale of the problem with toxic assets on the balance 
sheets of European banks. Stefan Ingves, governor of the Swedish Central Bank who co-authored the 
"Swedish solution" to the country's banking problems in 1992, said last week at a seminar at the New 
Economic School in Moscow, "It is possible to postpone finding a solution to the problem of bad assets, but it 
will not resolve by itself."  
 
It is no easy task to present a serious initiative at a global forum, and President Dmitry Medvedev was unable 
to do this. His talk of the need to switch to a new reserve currency is popular among average Russians, but it 
has little practical meaning at the government level. What prevents Russia from holding reserves in different 
currencies? The same thing that prevents any individual from doing so: The dollar remains the most secure 
reserve currency, and it is unclear what could replace it in the near future.  
 
The situation in China looks even worse. After 10 years of accumulating dollar reserves, it turned out that the 
very size of those assets (almost $2 trillion) has become a major headache for Chinese leaders. If they sell 
those dollars, the price of China's exports will increase as the dollar drops relative to the yuan. This would 
render their own savings worthless.  
 
For Russia, the need to maintain its active participation in the global economy is actually more of a domestic 
priority than a foreign policy goal. It is easy to oppose protectionist measures when your trading partners take 
the same position. Russia needs to keep its markets open even if other governments buckle under the 
pressure of their lobbyists and start protecting their markets.  
 
Even if Medvedev's promise to adhere to principles of free trade were just empty words, hard times are 
coming, and his resolve to stand by those words would make a significant contribution to the global struggle.  
 
09 April 2009 
By Konstantin Sonin 
 
Konstantin Sonin, a professor at the New Economic School/CEFIR, is a columnist for Vedomosti. 
 
 
© Copyright 2007. The Moscow Times. All rights reserved.  


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Newsletter nr. 40, May 2009. The financial furmoil in central and eastern Europe and fiscal policy in Croatia

CASE Network Studies and Analyses No. 382 European Neighbourhood Policy and economic reforms in the eastern neighbourhood

European Focus No. 1 (September 04, 2009) Facade Europeanization

Assessing household credit risk: evidence from a household survey

The 2008 political year: review without lessons...

Belarus external debt: sustaining levels in a time of global crisis

How inclusive is the Macedonian society?

A big success for the G20

Euromonitor, no.14

MEGA - Moldova Economic Growth Analysis, no.1, 2009

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