So there you have it. The US Federal Reserve sets monetary policy to fit conditions in the US economy. If decisions taken by the Fed cause collateral damage elsewhere, well, tant pis. So much for global governance.
Janet Yellen was loud and clear in her testimony to Congress this week. In so far as the Fed’s policy of withdrawing monetary stimulus had spooked markets in emerging economies, the turbulence did not represent a “substantial risk to the US economic outlook”. Put this another way: the world’s most powerful central bank pays attention to what happens in China, India or Turkey only in so far as it washes back over the US.
In one respect, the Fed chairwoman was offering a statement of both the obvious and the politically prudent. The duty of the Fed is to promote the economic wellbeing of the US. Had Ms Yellen said it was tailoring its tapering programme to the wishes of policy makers in Beijing, Delhi or Ankara, her first appearance before Congress as chairwoman might have been her last. Members of the House of Representatives are not noted for their devotion to multilateralism.
The emerging economies take a different view. Raghuram Rajan, India’s central bank governor, hasattacked the US for its apparent indifference to the global upheaval as rising states have been forced to raise interest rates in the face of Fed tapering. He has half a point: while the west headed into recession after the global financial crash, it was growth in the emerging world that kept the economic show on the road. Now that the US is recovering, it has returned to the old selfish ways.
The snag is that had Mr Rajan been in Ms Yellen’s seat he would have said much the same thing. Like the Fed, the Indian central bank sets interest rates to suit national economic conditions. The governor answers to Indian politicians. They would not applaud a policy framed to accommodate the concerns of central banks elsewhere.
I suspect that Mr Rajan would say the dollar’s position as the world’s reserve currency places a special responsibility on the Fed. But for as long as India, China and the rest remain jealous guardians of national sovereignty, asking the US to adopt a uniquely internationalist stance is futile.
There was a moment in the immediate aftermath of the global financial crash when governments from the advanced and rising states seemed ready to break the cycle of selfishness. In the early meetings of the Group of 20 nations, policy makers recognised their national interest in the mutual endeavour to prevent a slide into a 1930s style-recession.
It did not last. The passing of the immediate crisis has seen meetings of the G20 fall into the familiar pattern of such international gatherings: the responsibility to act in the wider global interest always belongs to someone else. None have been more jealous guardians of national prerogatives than the emerging economies.
The facts of economic interdependence cannot be wished away. At some point turbulence in the rising world may well exact a toll on the US; at which point, presumably, Ms Yellen could argue that countervailing action was in the US national interest. But this represents a strategy of waiting for the damage to be done. What a waste.
Less than two months in to 2014, parallels with events a century ago, when the first world war put an end to an earlier era of globalisation, are already wearing thin. In an eloquent speech in London the other day, Christine Lagarde, the managing director of the International Monetary Fund, suggested that policy makers should focus instead on another anniversary.
The 44 nations who gathered at Bretton Woods in 1944, Ms Lagarde observed in her BBC Dimbleby lecture, understood the connection between interdependence and collective action. The architects of the IMF and the World Bank looked beyond the deceptive lure of unvarnished sovereignty.
At this, the original multilateral moment, the representatives of 44 nations, Ms Lagarde recalled, “were determined to set a new course – based on mutual trust and co-operation, on the principle that peace and prosperity flow from the font of co-operation, on the belief that the broad global interest trumps narrow self-interest”.
Now there’s a manifesto for the G20.
Philip Stephens
Fonte: FT
