Switzerland joins the currency way – welcome to the G-zero
Amid the tumult of re-escalating eurozone crisis, the G7 meets in Marseille on Friday. Just five years ago that would have been seen as a sign for comfort. The finance ministers of the world’s seven most advanced “industrialised” (deindustrialised, surely?) nations meeting to iron out a common cooperative response to the world’s economic problems.
Alas, this looks pretty far from being the script. There will be no communique after this meeting. I have not heard of that before. There are suggestions that the French G7 presidency would like to send a message that the pace of austerity around the world should be slowed in current fractious markets. George Osborne could not sign up to that. Of course the G20, including China and Brazil etc, is the preeminent forum now, but that looks little more stable.
A G7 meeting in the middle of financial inferno, with no statement? Welcome to the G-Zero world. A world with little or no coordination of international economic relations. Nouriel Roubini, who coined the phrase earlier this year, can scarcely have expected to see G-0 become reality so quickly.
Switzerland’s actions today in effectively devaluing the Swiss franc by 9 per cent, a simply massive currency move, is a totem of this new world. No coordination with eurozone authorities. So that’s Switzerland, Japan, China, and arguably Brazil unilaterally making moves to weaken their currencies. Helpfully Switzerland is neither a member of the G7 or G20.
Japan acted unilaterally last month after coordinated moves failed to stem the damage of an expensive yen to its tsunami-ravaged manufacturers. The move happened after pleas from the head of Toyota and other car manufacturers.
This won’t be the last in a round of competitive devaluations. The US manages it by the backdoor through QE and the debt ceiling calamity. The eurozone through the bailout farce. Call it devaluation-by-farce.
No, this is the currency war, global monetary madness writ large in the world economy. We await some sort of announcement around QE3 from the specially enlarged Federal Reserve meeting next week too. This is an especially dangerous time in the world economy. Nations are dipping their toes into policies that inadvertently damage their neighbours.
Even within the eurozone the expected methods of transnational economic cooperation are faltering. The pesky Finns demanding collateral for their loans to Greece, a German politician demanding Greece’s gold. Germany’s own president saying the purchase of Spanish and Italian government bonds by the European Central Bank was “legally questionable”.
If Europe with a shared currency, and continent, can’t act cooperatively, what hope the world?
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