The Greek bombshell decision to hold a referendum on the last week's celebrated eurozone bailout package will ensure that the G20 Summit starting on Thursday in Cannes will be hijacked by Europe's troubles. A source of turbulence in the world economy, Europe's problems are the world's problems and should be on the G20 agenda. But the euro crisis risks distracting the G20's focus from its long-term imperative: ensuring sustained global economic growth.
The International Monetary Fund forecasts a decent 4 percent global growth this year. But that forecast has been repeatedly slashed throughout the year as Europe has failed to contain its crisis and U.S. fiscal plans remain hazy. The IMF now projects Europe will grow by only 1.6 percent and United States by 1.5 percent in 2011. Emerging economies are the silver lining, projected to expand by 6.4 percent this year.
The problem is that emerging market growth has short coattails. Despite bullish forecasts by Wall Street analysts, emerging economies have failed to generate a global "supercycle" of widespread growth and prosperity. Instead, they are hostage to the transatlantic economic morass that slows their exports and rocks stock markets.
But emerging economies could still ride to the rescue. Armed with $3.2 trillion in reserves, China could help bail out Europe. With $4 trillion in assets under management, emerging market sovereign wealth funds could invest in high-growth projects around the world. And by propelling domestic consumption all the while ceasing to manipulate their currencies, East Asian nations, China in particular, could stimulate export-led growth in the United States, which in turn would significantly accelerate global recovery.
But such fixes are neither easy nor likely.
