G20 - yawn

Alex Moffatt

Were I President Xi Jinping, I’d be confused. Having been met by anti-communist protestors in Hong Kong last week and the, arriving in Hamburg for the G20 meeting, by anti-capitalist ones he might wonder, why we don’t send all the disgruntled kids from Hong Kong to Europe and ship the European rent-a-mob to Hong Kong and then see how happy they are?

So the leaders of the 20 largest economies have come together to shake hands, take part in some photo opportunities and to then do what? One thing they won’t do is “fix” the world economy. They also won’t achieve much in terms of “fixing” the environment, not least of all as presidents Putin and Trump were scheduled to have their private one on one at precisely the time when the environment was scheduled to be on the agenda.

This “G” stuff began in 1975 with the G7 or, more precisely, the Group of Six when French President Giscard d’Estaing invited the finance ministers and central bank governors of France, Italy, Germany, Japan, the UK and the US to an informal get together in order to compare notes and, above all, to work towards more stable currency markets. The West was still in turmoil in the aftermath of the 1973 oil shock and subsequent bout of hyper-inflation and the sense was that a joint approach might be beneficial. It was in fact not until 1979 that Paul Volker was appointed president of the Federal Reserve and the choice of aggressive interest rate policy to drive out inflation at all cost was fundamentally of his making.

In the post-Bretton Woods world of free-floating currencies, the significant differences of interest rates from one country to another while combined with a deep recession led to massive forex flows and it was at the level of the G7 – Canada had been added to the group in 1976 – that co-ordinated action was sought. Stronger emerging economies quite rightly believed that they too should have a voice and, once the G7 had become the G8 by the inclusion of post-Soviet Russia. So then came the G20 so that the likes of China, India, Brazil and so on could come for the dinner although by this time the palpable purposes of the original G7 had been lost in the underlying obligation to find common ground amongst otherwise totally incompatible countries and to release concomitant statements. Thus the G20 has developed into a luncheon and dining club with possibly the worst relationship between expressed intentions and actual actions.

In the end nothing will be left over other than a very large bill for policing and security and happy days for window glass suppliers. That said, and in the words of the late Winston Spencer Churchill, jaw-jaw is better than war-war so such off-grid meetings like the one today between Trump and Putin must be seen to have some value. Expect some statements on the environment, North Korea and on the need to fight poverty and social exclusion. All the while the Italian’s inevitable push to get India and China to take the odd hundred thousand African migrants won’t add up to too much and I’m not sure whether Malaysia, Saudi Arabia or Turkey will be on the migrants wish list of destinations.


Alex Moffatt

Alex Moffatt has almost 40 years’ experience dealing in equity, debt and currency markets in Australia, the UK and USA. He has worked at several companies in the wealth management industry, including Schroders in the UK. A director of Joseph...

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