East is taking over from West in irreversible shift of economic power

[Naveed Yaseen]

By Jeremy Warner

Istanbul is also the city where famously East meets West: it therefore seems symbolic of the supposed spirit of cooperation that has united the world in fighting the recession.

The crisis has allowed the International Monetary Fund (IMF) to rise from the dead and, along with the newly formed G20, begin a new age of dynamic government and international intervention in the affairs of the world economy.

By common agreement here in Istanbul, extraordinary and concerted policy action around the world has succeeded in averting a second Great Depression, even if nobody is yet brave enough to declare the recovery assured. How sustainable is this newly cooperative world? Once the recession is over will nations merely slip back into the old order of things?

Over the past year, nations have been persuaded to act collectively for the perceived common good. Yet this is as much because common and self-interest have coincided as out of any new sense of global responsibility. Will it last once these interests begin to diverge again? There’s good reason to be sceptical, but also cause for optimism.

However, the commitment to keep stimulus packages in place until the economic recovery is entrenched is already being flouted. China is already exiting stimulus measures of its own accord amid growing concern over runaway credit and asset price bubbles.

What’s more, there is only limited recognition among the big export-led economies of the need to adjust their economic models in the interests of more balanced and therefore sustainable growth in the world economy.

German policy-makers refuse point blank to concede that their export and save approach to growth had anything to do with the crisis, reasonably pointing out that in a free market system if foreigners want to buy German goods it would be quite wrong to stop them.

China, too, is reluctant to have ‘global imbalances’ as any part of the international policy debate, even though the root cause of the crisis was over-reliance on the US consumer. There is also a risk that unless China accepts the need for currency reform, a much more dangerous protectionist backlash against its goods will arise.

The good news is that for the time being there is little need to impose ‘rebalancing’ policies on the global economy. Credit constraints are causing deficit nations to consume less and save more. Meanwhile, the collapse in external demand is forcing export-led economies to do more to stimulate domestic consumption.

It has taken calamity to bring about the change the IMF has long thought desirable. The East is taking over from the West as the locomotive of economic growth. Small wonder that the last rites are being read to the G7 here in Istanbul. The crisis has made the shift in geopolitical and economic power from the richer to the more populous nations irreversible.

The writer is an assistant editor of The Telegraph
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