What will it take to get them to stop blowing the recovery with unforced errors?
Christine Lagarde, managing director of the IMF/Reuters
Why have our supranational institutions become such punchlines? That's the question Alan Beattie, the International Economy editor at The Financial Times, asks in his forthcoming e-book, Who's In Charge Here? (which you can, and should, buy here). Whether it's Europe's top officials blithely stumbling from one bailout to the next, or our own voluntarily flirting with default last summer, there's been a deficit of clear thinking among policymakers. Add to that a lack of will among international institutions like the G20, and the results have been tragicomic.
Consider the latest example of financial legerdemain out of Europe. During its most recent meeting, the G20 neared an agreement to create a "firewall" to contain the Euro crisis. Headlines trumpeted a huge, imminent $2 trillion deal. This figure is accurate. Give or take $2 trillion.
What made the new money fictitious? First, it wasn't new. International leaders had been hinting a trillion-dollar firewall for a while. Second, nobody trusts Germany to contribute the funds it has promised, which makes them less likely to put up their own billions. In other words, there was no firewall. The world's greatest powers had agreed, in principle, to agree to something fictitious, at a later date. And that was one of the more successful G20 summits!