Finance chiefs from the biggest economies rang the alarm over global growth and said they’re prepared to do something about it. Too bad they’ve never been less relevant.
Gone are the days when investors used to quake over ministers moving a comma or adding a period in key sentences. If their weekend statement was intended to shore up confidence or call out risks, they might as well not have bothered. Markets moved yesterday morning on Trump’s suspension of tariffs against Mexico.
Not because markets are always right, but because the very things undermining confidence in the world economy are precisely the things the ministers aren’t equipped or empowered to handle. When big changes in economic policy are set by presidential tweet in response to immigration issues, real or concocted, finance ministers can say what they want and it won’t amount to much. US President Donald Trump has made himself the secretary of everything.
The power to resolve the world’s most immediate economic challenge, the trade war between the US and China, doesn’t rest with anyone within hundreds of miles of Fukuoka. It rests with Trump and Chinese President Xi Jinping. To be fair to the US delegation, China’s representatives were equally powerless.
I write this with considerable regret. Over my career at Bloomberg News, I have spent not a small number of hours poring over ministerial statements, obsessing over grammatical adjustments or changes in tense that contained great import. If the finance ministers and central bankers said something in a communiqué, you could take it to the bank as the official view of the world and commitments made therein were more or less honoured.
Part of that halo rested on the assumption that the assembled great people spoke for their respective administrations. Sure, circumstances could and did change. But total flip-flops or left-field actions were rare. Who can say that now?
The heyday of such meetings was in the second half of the 1980s and arguably through the 1990s with the Plaza Accord in 1985, the Louvre Accord two years later and additional efforts to nudge currencies and interest rates around based on shared interests. The numerals following the “G” changed, but the basic idea remained. Even into the 2000s, markets would gyrate Monday morning in response to G-7 lightning bolts like at Dubai in 2003, which signalled a desire for a weaker dollar.
The Fukuoka irrelevance didn’t just happen overnight. Such gatherings have been losing gravity for a while. The markets that finance ministers and central bankers most directly influence, currencies and bonds, are so much bigger nowadays.
The G-7 retired itself after the global financial crisis as the premier powwow and the Group of 20 became the main organ. The goal was to get buy-in from a wider array of players, especially big emerging markets like China, India and Brazil. It also meant more dilution for common ground.
The language became fuzzier. Angel Gurria, head of the OECD, is correct when he says central banks are heroes of the modern era. Fiscal and regulatory authorities don’t look so hot by comparison. Lucky for everybody central banks are there to clean up crises. They were present in Fukuoka, but by convention are rarely as visible as the finance ministers.
As monetary mandarins contemplate cleaning up after the tariff-induced slowdown, we ought to do two things: first, applaud central banks for their heroism; second, ponder whether they’re enabling bad behaviour by prospectively bailing out protectionism.
It’s enough to make you head to a bar at the Plaza Hotel. — Bloomberg.