Carnegie Endowment for International Peace
After stagnating for decades, economic growth in Africa has accelerated, but maintaining this rapid growth is far from guaranteed. Policy makers must build on past successes and tackle tough reforms before the world’s poorest continent can make sustained economic progress.
Reform of the international monetary system tops France's agenda as chair of the G20 but a review of the system during the crisis suggests no major overhaul is needed. Instead, major economies must change their domestic policies to ensure that the system functions smoothly.
While the obsession with global rebalancing stokes currency and protectionist tensions, it diverts attention from what is really needed—reforms at home.
The increased use of intermediate inputs in world trade distorts bilateral trade balances, reduces the importance of exports as drivers of demand, and hides the true cost of protectionism.
Despite the recent optimism in Europe, evidence that countries are dealing adequately with the underlying causes of the euro crisis remains scarce. For the European rescue to succeed, leaders must focus on structural problems, not just fiscal ones.
The recent emphasis on global economic rebalancing stokes current tensions and contributes to protectionist sentiment while diverting attention away from what is really needed—domestic reforms in the world’s largest economies.
Policy makers around the world who are pushing China to revalue its exchange rate should note that an appreciation of the renminbi—unless accompanied by an acceleration of China’s domestic demand—will be of little benefit to most economies.
An examination of past episodes of currency tension suggests that competitive devaluations are not likely today. But the forces behind past collapses remain highly relevant and policy makers cannot afford to be complacent.
Overcoming the debt crisis that has stricken Europe and restoring long-term growth prospects for the continent will require European countries to enact major coordinated action and far-reaching structural reforms.
The revival of the European debt crisis will force EU leaders to choose between entering into a deeper fiscal and economic union or confronting sovereign defaults and the possible break-up of the euro area.
