Originally published by the Carnegie Endowment for International Peace in Brussels
Participants: Uri Dadush and Denis Redonnet
The G20 summit in April committed member states to a review of the governance of international financial institutions and a recapitalization of the IMF, while also providing the WTO with a clearer mandate to identify the protectionist measures taken by its members. But the possibility of a deepening and more protracted economic downturn remains. Large job losses continue across the globe, and according to Uri Dadush, the violence of the global financial crisis remains untamed. Aggressive action by EU member states is needed to turn the tide of the economic downturn.
Carnegie’s Uri Dadush and Denis Redonnet, Head of WTO, OECD and Dual-Use Unit at the European Commission Trade Directorate, discussed how the economic crisis is affecting the United States, EU member states and developing countries, and how Europe can contribute to effective global solutions to economic hardship.
On the Eve of an Economic Revival?
Despite “green shoots” of growth, Uri Dadush remained unconvinced that the economy is on the edge of recovery. There are still large declines in economic activity around the world, combined with worsening household, bank and corporate balance sheets. Natural stabilizers like the housing market and the car industry are not recovering. This indicates that consumer confidence is still low.
Recommendations for Europe
Declining consumption indicates a need for an active fiscal and monetary policy. Dadush urged European governments to continue restructuring banks and helping to free them from bad assets, as well as increasing fiscal stimulus. Redonnet added that Europe should also prioritize repairing its member states impaired balance sheets.
Recapitalization of the IMF will be extremely important for prompting a recovery in emerging economies, which Redonnet argued are the engine for economic recovery. Dadush warned that 20-30 countries, some of which are on the borders of Europe, run the risk of getting into serious trouble in the short term – including mass unemployment. Further decline in these economies will not only have disastrous humanitarian consequences, but also exacerbate the current economic crisis in Europe.
Combating Protectionism
Dadush warned that Europe should not underestimate the threat of resurgent protectionism – 70% of trade measures enacted since November 2008 have restricted trade. Protectionism creates a vicious cycle in which declining demand leads to unemployment, which reduces household incomes, leading to further decline in demand. The likelihood that more protectionist measures will be created in the coming months is real and needs to be monitored closely by international organisations.
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