The final communique of the G-20 Finance Ministers and Central Bank Governors Meeting that took place Friday and Saturday in the resort town of Baden Baden, Germany informed us that nothing constructive had been achieved at that gathering.
This should not come as a surprise, because in reality, other than offering a boost to the airline and hotel industry, caused by all of these kind of summits, it’s debatable whether the G-20 has ever done anything constructive during the whole course of its existence.
The G-20 was formally established by the end of 1999 at what was then called the G-7 Finance Ministers' meeting and that was, interestingly, and according to some sources a joint creation of Germany and the United States.
Now, the problem with these multinational gatherings is that once they start they are very difficult to stop.
What the latest G-20 meeting did offer up was a somewhat destructive omission of the commitment to prevent protectionism in its final communique.
This, of course, was because the United States did not want to be seen as the defender of free trade anymore.
The reality of this is not that significant.
Protectionism has increased continuously over recent years. Please keep in mind that the phrase "we will resist all forms of protectionism" has only appeared in final G-20 communiques since February 2013 as concerns about de-globalization became a real concern at the G-20 meeting in Moscow, Russia.
By the way, the WTO (World Trade Organization) has repeatedly sounded the alarm bell about rising trade protectionism. For example, in July of last year the WTO urged its members to resist protectionism in its report on recent trade developments. The report informed that trade restrictive measures had gone up between October 2010 and May 2016 from 546 to 2,348.
It’s a fact that the whole subject is not new, but it has called a lot of attention from the media now that the U.S. has made it clear at the G-20 meeting in Baden Baden, Germany that it was not even prepared to sign up to a communique that would have included the phrase "we will resist all forms of protectionism," notwithstanding the U.S. could subsequently easily have ignored that phrase.
Nevertheless, this is an event that investors should note.
It is also worth noting that German Chancellor Angela Merkel said at the CeBIT technology fair in Hanover: “We do want open markets, fair trade, we certainly don't want any barriers but at a time of an 'Internet of things' we want to link our societies with one another and let them deal fairly with one another, and that is what free trade is all about. It's very, very good that Japan says we want a free trade agreement, we want it soon because that could be the right statement and Germany would love to be a propelling drive behind this.”
I’d like to add that such forms of bilateralism create preferential trade agreements and would de-facto increase barriers to other countries like, for example, the United States.
A different aspect of politics comes today into focus with the testimony of FBI Director Comey to Congress.
Ordinarily, this would not be something investors should care about.
On this occasion, President’s Trump accusation that he was subject to wiretapping by President Obama is a topic for investigation, and that does matter for a couple of reasons:
On one level, it matters because the British government is getting rather upset about being drawn into this, so there are international implications.
On another level, this is an issue that may have a bearing on future relations between the White House and Congress as the Trumpcare health package, the fiscal stimulus, infrastructure spending and reform of the tax code, all require Congressional approval.
The relations between the White House and Congress are something that really matter.
From the Euro area, we got the German producer price inflation rate for February that came in at 3.1 percent y/y and which was the highest annual rate since December 2011.
That number matters for investors as it shows that inflation pressures continue to go up in Germany, which will put pressure on the ECB to quit earlier rather than later its easing policy.
The day that’s the case, and notwithstanding all the political risk that faces the Euro area this year with elections in France and Germany, and maybe in Italy, the first sign of tightening could provoke a rise in the value of the euro, which should matter to all investors.
Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.
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