G20 Summit – To Spend Or Not To Spend?

Posted on March 29, 2009 by Yohay
Filed Under Forex Opinions | 3 Comments

The G20 summit is due on Thursday. The US and the UK tend to call for a global stimulus plan while Germany wants to slow down. Will money be spent? Who will spend? And how will the forex market move?

Heads of state from the top 20 industrialized nations are getting together in London, on April 2nd. The protests have already begun across Europe. The protesters are angry at the bankers – causing the crisis and taking bonuses, and also at the politicians – for saving them.

The British government, hosting the G20 summit, has reportedly suggested to flock $2 trillion to the IMF, in order to stimulate world growth.  The British government currently dismissed this report, but such a plan sure is on the table. Gordon Brown said that the G20 nations should do “whatever it takes”. There was no report on where the money would come from.

Currently, the IMF is mostly funded by the US. Will the Obama push to spend more American money on stimulus plans? Officially no. Well, not yet. This report states that the US “won’t tell other nations to spend more”. But, and there’s a “but” :

But the officials said President Barack Obama would stress the need for “significant stimulus” to jumpstart the ailing world economy during the meeting of leaders from the world’s major economies.

Many of the world’s industrialized countries are European. So what do Europeans think of more spending. They’re totally against it.

Both Angela Merkel and Jean-Claude Trichet have expressed their firm opinion against American-style stimulus. This article enhances on this issue. Germany feels that they already spent enough stimulus money – $110 billion. Both Germany and France would like more regulation – not stimulus spending.

In the meantime, Norway has pledged $4.6 to the IMF for global stimulus. Norway has lots of cash reserves from saving money it makes on exporting oil. This sum is far from $2 trillion…

G20 Summit Scenarios

  1. Anything can happen in the G20 talks. One scenario is that the leaders could leave London without an agreement. Policy will continue to be independent, and the summit will just be a photo opportunity for everybody. They’ll show concern over the world’s economy, but do nothing. Impact on forex market – nothing.
  2. A second scenario, is that Obama’s charm and enthusiasm will work its ways on the leaders, and they’ll pledge for a huge stimulus plan involving all the world. This will confuse the forex market – who will pay for this? Who will get the money? Only after the details emerge, the forex market will take a direction. In the meantime – chaos…
  3. A third scenario is that the US will carry most of the burden of a global stimulus package. Obama will push forward, but without European cooperation.  In this case, the big loser in currency markets will be the US dollar. An additional big spending plan, this time for the whole world, will further devalue the greenback. Such a scenario will add to the other Top 5 Dollar Downers.

What will happen at the G20 Summit? Hard to tell, but anyway, it’ll be very interesting to follow!

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Comments

3 Responses to “G20 Summit – To Spend Or Not To Spend?”

  1. Forex Weekly Outlook - March 30 - April 3 2009 on March 29th, 2009 11:43 am

    [...] week ahead in the forex market. Non Farm Payrolls, ECB rate decision and the G20 summit talks will be the highlights of the week. There are lots of other major indicators this week, that [...]

  2. AUD/USD New Resistance Line Formed on March 30th, 2009 9:28 am

    [...] forex week can turn out to be quite wild, with lots of economic indicators, and with the G20 summit. If the US dollar weakens, this downtrend resistance is serious. If the greenback strengthens, the [...]

  3. G20 Verdict: To Spend! Dollar Falls on April 2nd, 2009 12:37 pm

    [...] I mentioned in my post “G20 – to spend or not to spend?“, this world stimulus plan will be significantly funded by the US. Spending more US dollars [...]

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