May 3, 2004
by Irwin Stelzer
“Thank goodness they’ve left town, whoever they were,” sighed Washingtonians after days of traffic mayhem. Not satisfied with the security assured by their anonymity, the G-7 finance ministers roared around Washington in their black SUVs, led by police with sirens wailing, and accompanied by armed security guards peering menacingly out of the windows of the giant vehicles. After all, the ministers of the leading industrialized countries (U.S., U.K., Germany, France, Japan, Italy, Canada) tend to regard themselves as the magnificent seven when the 184-nation International Monetary Fund and the World Bank hold their spring meetings. Taxicabs are for representatives of lesser nations.
With all of the formal work completed by their sherpas before they arrived, only a few chores remained for the ministers. The first was to avoid expressions of incredulity when U.S. Treasury Secretary John Snow explained why a budget deficit that has soared to 5 percent of GDP doesn’t really matter, and is “manageable and understandable.” And not a single snort of derision could be heard when he laid out deficit-cutting plans that the assembled ministers know will never pass the congress.
Still, since most of the G-7 countries are counting on continued spending by the U.S. government and American consumers to buoy the global economy, their finance ministers were not entirely unhappy to hear of America’s plans to keep the cash registers ringing in American shops that are stocked with imported goods.
The second assignment for the ministers was to express satisfaction with the state of the world economy, a chore they disposed of with little difficulty. After all, the International Monetary Fund is forecasting that the world economy will grow at a rate of 4.6 percent this year, up from last year’s healthy rate of 3.9 percent.
With such good news to revel in, why bother with the nasty fact that almost all of the growth will be provided by the U.S. and China, while Germany and France, having refused to adopt the structural reforms promised at the Lisbon meetings, wallow in double-digit unemployment? Nor did the ministers feel it necessary to comment on an Economist Intelligence Unit’s forecast that growth in the EU will continue to lag behind America’s.
Instead, most of the time was spent doing what finance ministers do best—tucking in at lavish dinners, plotting and gossiping, Britain’s Chancellor, Gordon Brown, being something of an exception: he was spotted browsing the used book stalls in Georgetown in search of some intellectual sustenance.
The hottest topic was Federal Reserve Board chairman Alan Greenspan’s plan to raise interest rates—not whether, but when, and by how much. With the U.S. economy growing at about 5 percent, the manufacturing sector experiencing its fastest growth in five years, consumer confidence on the rise, new-home sales up 8.9 percent in March, Wall Street clocking up big profits and paying out-sized bonuses, smiles returning to the faces of Silicon Valley options holders and pricing power returning to board rooms, and the inflation rate now up to 2 percent, the G-7 ministers know that Greenspan will have to move rates up. Their hope is that he will do so later rather than sooner, and by tiny increments. They are likely to get at least one of their wishes.
Private discussions of the most contentious topic, joblessness in France and Germany promptly leaked, revealed the strains created by monetary union and the one-size-fits-all interest rate policy of the EU. France’s Nicolas Sarkozy and Germany’s Hans Eichel berated Jean-Claude Trichet, president of the European Central Bank, for not lowering interest rates to stimulate economic growth in their countries. Sarkozy complained that he has no control over his own economy, and Eichel whined that the ECB is taking account of the European average rather than the needs of Germany. Fortunately, Brown, who saved Britain from a similar fate by erecting so many barriers to his country’s adoption of the euro that even Prime Minister Tony Blair couldn’t clear the hurdles, suppressed a chuckle.
No round of gossip would be complete without a discussion of who-gets-what-jobs. It was settled in advance of the meeting that Spain’s Rodrigo Rato, whose reformist credentials are in order but who has no experience managing international financial crises, would land the plum post of managing director of the IMF. But this consensual succession may well be the last such, as the developing nations have decided henceforth to challenge the notion that the job is to be reserved for a European.
The fact that Jim Wolfensohn’s second term as president of the World Bank is about to expire created the most intense gossip. Wolfensohn, who very much enjoys the pomp and circumstance with which he is greeted in emerging nations when he shows up to hand out taxpayers’ money, is desperate to be reappointed. But his staff is said to be hoping he will be allowed to return to private life, and devote more time to practicing his cello-playing. They say that he insists on receiving credit for all of the Bank’s successes, and on blaming others for its multiple failures. So they were cheered by rumors that Secretary of State Colin Powell might be in line to succeed Wolfensohn. Not likely says—guess who?—Wolfensohn. In an interview he hastened to throw cold water on the Powell boomlet by telling reporters, “I don’t think there’s the slightest likelihood that Colin Powell would want to become president of the World Bank after putting up with everything he’s put up with as secretary of state.” Clear implication: my job of World Bank president is as important, and as pressure-laden, as is the Secretary of State’s.
And then they were gone, the sirens silenced. Abraham Lincoln was wrong when he told an audience in Gettysburg, “The world will little note, nor long remember what we say here.” But that’s not a bad phrase for some self-important finance ministers to keep in mind.
This article appeared in London’s Sunday Times on May 2, 2004.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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