What G20 Leaders Must Do To Stabilise our Economy and Fix ... - Vox

Coordinated responses versus identicalresponsesRefet S. GürkaynakBilkent University and CEPRThe G20 leaders face two related but distinct problems: mitigating the economic damage ofthe global recession, and reducing the chances of future financial crises. The recessionrequires coordinated macroeconomic stimulus, but coordinated need not mean identical. Theleaders should also discuss financial regulation, but a unified financial regulatory frameworkfor the whole world is unattainable and undesirable. Leaders should waste no time on this;national financial systems vary too widely and some are already over-regulated.The November 15th meeting of the G20 leaders should (and will likely) discuss threetopics.• The frozen, albeit slowly thawing financial markets;• The impending recession, and;• The precautions that should be taken to make sure such an episode is notrepeated.Two separate but related problems: crisis and recessionThe liquidity crisis that has crippled financial markets around the world and the globalslowdown in economic activity are two related but separate problems. The centralbanking community realised this early on and offered different remedies to each, inparticular by coming up with creative ways of providing liquidity to financial institutionswithout relying solely on interest rate cuts. Going forward, it will be importantto keep in mind the distinction between firefighting in financial markets andgeneral macroeconomic policymaking.Coordinated doesn't mean identicalThe global nature of the crisis has increased (partly successfully) calls for coordinatedaction across countries. Leaders should be careful to distinguish between "coordinated"and "identical".Macroeconomic stimulusNow that the fire in the financial markets is somewhat doused, there is general agreementon the need for coordinated fiscal stimulus to dampen the effects of the globalrecession. Appropriate fiscal stimulus will be of different sizes and styles in differentcountries. While sending each household a check might be suitable for the US, manycontinental European and developing economies are better served by increasedspending that addresses their structural economic problems. The reforms that address7