This article is a guest contribution from Kati Suominen, Trans-Atlantic Fellow at the German Marshall Fund in Washington, via VoxEU.
Did global imbalances cause the global crisis? This column summarises the variety of explanations of the relationship between imbalances and the crisis. While the debate continues, it suggests that, as a matter of prudence, policies to contain global imbalances may still be warranted even if they did not trigger the crisis.
At their 26-27 June Summit in Canada, the G20 members will take the first look at their progress on the “Framework for strong, sustainable, and balanced growth,” a concerted effort adopted at the September 2009 Pittsburgh Summit to contain global imbalances.
The timing is opportune. With trade, credit, and commodity prices recovering, the IMF (2010) recently revised its projections of US current-account deficit to 3.3% of GDP in 2010 and 3.4% in 2011. Also UK, Canada, Australia, India, Turkey, France, and southern European nations are projected to run steep trade deficits (Figure 1). The mirroring surplus nations are the familiar China, Japan, emerging East Asia, Germany, and oil producing nations.
Figure 1. Global imbalances 1996-2015
Source: IMF (2010).
The Framework builds on the G20 November 2008 Summit declaration, which blamed both regulatory failures and the drivers of the imbalances (“inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms”) for the global crisis.1 Under the Framework, each G20 member is to subject its economic policies to a peer review managed by the IMF, which, in turn, determines whether the member’s efforts are “collectively consistent” with global growth goals.
