Financial stress - from South Korea to Ireland

The G20 Summit is on in South Korea.

The Group of Twenty Finance Ministers and Central Bank Governors (G-20, G20, Group of Twenty) is a group of finance ministers and central bank governors from 20 economies: 19 countries plus the European Union, which is represented by the President of the European Council and by the European Central Bank. Their heads of government or heads of state have also periodically conferred at summits since their initial meeting in 2008. This year held in South Korea, US President Obama has included a stop while on his South Asian tour.

According to Wikipedia, the G-20 economies collectively comprise 85% of global gross national product, 80% of world trade and two-thirds of the world population. The summit now meeting in South Korea is focusing on sustaining a fragile global economic recovery, expanding trade, and dealing with the threatened default of loans by certain countries.

This summit is marked more by public disagreements than progress. The US is being criticized for injecting $600 billion into its own economy by the Federal Reserve, which has the affect of lowering the value of the dollar for trading. For those countries relying on selling products into the US market, the costs of their products went up, and profits down. For US exporters, a weaker dollar means their products are more attractive to other buyers and therefore they are likely to sell more.

China's currency, the Renimbi, is under attack for being held at an artificial low for the same reasons - so they can sell more product overseas. These are difficult issues. The value of the renimbi is kept low by Chinese policy so that its exports are inexpensive, and sought after around the world.

In the background, another European country is facing a looming deadline for paying off the next round of debt come due. Ireland is searching for funds to pay debts, its economy is in shambles with unemployment back up, banks collapsed, and spending down. It is one of those countries that is following the crisis in Greece a few months ago. Right now the European Union is looking at providing an emergency loan to Ireland so that it meets its obligations, while preparing an austere budget for next year. Irelanders are not happy with their government, which is likely to lose the next elections. They consider it responsible for poor fiscal practices (guaranteeing bank loans that were obviously risky) while paying high salaries and benefits to the elected leadership. The question now is, who will pay the new debt - the bank shareholders or taxpayers?

Angry Irish scuffle with police in front of a bank that accumulated bad debt and faces collapse

A massive boom in construction, fueled by almost unending credit from the country’s banks, set Ireland up for its disastrous economic contraction over the last three years. The scale of the problem can be seen at the National Asset Management Agency — a “bad bank” set up to buy construction loans from the industry. NAMA will buy more than €73 billion in loans but is paying significantly less than half their face value because so much of the debt will have to be written off. If it’s going to fight its way back to growth, Ireland will have to fall back on its traditional strength as an exporter. And for that, it will be reliant on a strong recovery for the global economy.
Fancy Wexford Ireland apartments that were built during the housing boom, but have not paid off their loans

However, the key point to these troubling headlines is that there are mechanisms in place: Summits as these to talk directly and negotiate, agreements to followup, larger pooled resources for countries to draw on if their own resources falter. Those are the layers of support that the headlines usually do not follow up on, but that allow attention to be paid to issues over the long term.