G20: Economic growth can be created by trade not decree
Final delusion over the global economy will have set in for any optimistic business-person or economist following the conclusion of the G20 summit in Brisbane, Australia, writes Prince Michael of Liechtenstein.
World leaders agreed on a package of measures aimed at growing the world’s economy by some two trillion dollars by 2020.
Insufficient consumer spending in Germany and China, the old mantra, were criticised in this context. Growth is again based on expansionary government policies - quite simply new debt.
German Chancellor Angela Merkel can be criticised, but nobody can deny that she is a realist. Germany believes that increased public debt and unbalanced budgets are detrimental in the long term, and growth cannot be achieved by decree.
Growth needs innovation, business, creativity and productivity - in fact entrepreneurs.
Germany’s point of view seems logical, although Germany itself needs to carry out urgent reforms to reduce the public sector and improve the regulatory and tax environment with fewer but more efficient regulations.
The G20 resolutions on economic growth stirred recollections of former Soviet rhetoric when issuing its five-year plans - grotesquely part of political procedures which nobody believed.
World leaders also showed hypocrisy. It was felt that tax rulings given by some countries to multinational companies were damaging, and greater transparency was needed to what some considered an immoral practice.
But some facts were conveniently omitted: Most leading countries are engaged in these practices, and even sovereign funds, such as Australians, have used them. It is interesting therefore that Australia’s government was at the forefront in snubbing such rulings.
Fingers are now being pointed at the Netherlands and Luxembourg, but there are other places too, such as Delaware in the United States.
But the most important factor is that those rulings were necessary for multinationals because of the complexity, unreality and legal insecurity of the tax laws in all leading countries.
A ruling did at least provide business with some planning and legal security.
If the G20 leaders were serious about tackling this issue, they would resolve to implement tax reforms in their own countries making their tax codes short, simple, transparent and efficient. This would solve the issue instantly and create legal security.
But there was some good news on free trade with European leaders meeting US President Barack Obama in Brisbane to discuss the Transatlantic Trade and Investment Partnership (TTIP).
This is a free trade project between the US and the European Union, which would strongly enhance trade between the two blocks and be very beneficial to economies on both sides of the Atlantic.
Unfortunately, the TTIP is challenged in Europe and political parties and NGO's are stirring fears for populist and ideological reasons. The German Chancellor supports the TTIP and, hopefully, other European leaders will follow.
The US is advancing on a similar project, the Trans-Pacific Partnership (TPP), with 12 countries in the Asia-Pacific region. If Europe fails to progress the TTIP it will lose economic growth, markets and marginalise itself further globally.
Let us hope that European politicians will not only discuss this free trade agreement with President Obama but also have the courage to lead their countries into accepting its advantages.
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