World Crisis Online

Jörg Asmussen backs French minister Christine Lagarde on global economic governanceThe German government expects finance ministers of the Group of 20 leading economies to agree on specific indicators to monitor the causes of global imbalances but does not see them setting quantifiable targets for individual countries, a senior German official said.

A deal, which could be reached this weekend, would seek to reconcile the divergent views of the US, which has the world’s largest trade deficit, with those of China and Germany, boasting two of the largest surpluses, as well as revive momentum within the group towards wider agreement on the reform of global governance.

The senior German government official, speaking on condition of anonymity, said agreement was close on five indicators of the “causes of imbalances”, a subject of fierce dispute between Washington and Beijing. They would include current account imbalances, real exchange rates, public sector debt and deficits, currency reserves, and private sector savings rates.

He added, however, that “no specific target will be set for the level any particular country must achieve”, suggesting the US has been forced to back down on its demand for such targets.

Berlin is also pushing for a deal this year on reform of cross-border financial institutions – banks deemed “too big to fail” – and action to contain capital market volatility, while limiting the use of capital controls, according to Jörg Asmussen, who will chair the G20 working group on global monetary reform.

Mr Asmussen, state secretary in the finance ministry, told the Financial Times that Berlin was backing France to deliver ambitious proposals on global economic governance in time for the summit meeting in November.

Other reforms of the International Monetary Fund, including wider official use of special drawing rights and closer surveillance of capital movements, could be agreed in time for the summit, he said, adding: “The international monetary system has proved to be resilient, but it is clear there are tensions and vulnerabilities.”

The “controversial issue” of capital controls would be discussed for the first time, as would questions of global “liquidity management”, another sensitive subject for the US government.

Mr Asmussen said capital controls should be permitted only in “exceptional circumstances”, while freedom of capital movement would be the norm. On questions of global liquidity management, he said that “it has become very clear that national policies can have global spillover effects”.

However, he insisted the US was not intended as the target. “We are not looking at one specific country. We are looking at the global monetary system and how to improve its stability.”