Fragile Global Rebound Troubles Finance Chiefs as Variants Lurk

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Global finance chiefs signaled alarm over threats that could derail a fragile recovery as they concluded a meeting that sought to start reshaping the post-crisis economic order.

New variants of the coronavirus and an uneven pace of vaccination could undermine a brightening outlook for the world economy, according to a communique agreed to on Saturday by Group of 20 finance ministers at a gathering hosted by Italy in Venice. They resolved to keep up support for growth to ensure recoveries can continue to take hold.

Officials also endorsed a global accord to make multinationals pay more tax in places where they operate, and to set a minimum corporate rate, though their talks exposed ongoing tensions. They recognized the role of carbon pricing in tackling climate change for the first time, but with no consensus on when to achieve net zero emissions.

The G-20’s uneasy outlook underscores how its immediate challenge remains steering the world out of the worst crisis in living memory even as longer-term matters such as rewriting a century-old tax system or environmental concerns fill its agenda.

“With a dangerous wave of a highly transmissible variant now making its way across the globe, the pandemic remains the fundamental risk facing the world,” International Monetary Fund Managing Director Kristalina Georgieva said in a statement after the meeting.

The delta variant, first spotted in India and now spreading across the world, is emerging as a new threat after more than a year of crippling lockdowns. While the U.S. and Europe are enjoying strong recoveries as vaccinations spread, other places are lagging, such as India and South Africa.

Those contrasting trajectories weighed on the minds of ministers at their first physical meeting since the pandemic struck last year.

Wary of Variants

“The recovery is characterized by great divergences across and within countries and remains exposed to downside risks, in particular the spread of new variants,” the ministers and central bankers said in their communique.

Their sentiment reflected a creeping worry among advanced-world finance officials that extraordinary stimulus measures combined with the most ambitious health response of the postwar era might still be insufficient to consign a crippling emergency to history.

“We all agree we should avoid introducing again heavy restrictions on the movement of citizens,” Italian Finance Minister Daniele Franco said at a press conference in Venice. Vaccination “is the main tool that we can use, and if a population is immunized the spread of the variants will be reduced and less likely.”

Aside from recognizing the dangers, finance ministers also sought to make progress on outstanding issues that could shape the post-pandemic era, with mixed results.

Amid the breakthrough on carbon pricing, a push by European nations for more ambitious language about cutting net greenhouse gas emissions to zero by 2050 was thwarted by countries more reliant on fossil fuels, according to people familiar with the matter.

Tax Talks

Meanwhile a global revamp of corporate tax agreed among 132 countries -- including all members of the G-20 itself -- was given another endorsement pending talks aimed at a finish in October. The change would impose a global minimum rate and allow governments to capture more revenue from multinationals in their jurisdiction.

“The world is ready to end the global race to the bottom on corporate taxation and there’s broad consensus about how to do it,” U.S. Treasury Secretary Janet Yellen said after the meeting.

Even there however, some issues remain unresolved. On Monday, Yellen will discuss her concerns that a proposed European Union digital levy might undermine the global tax deal, in a meeting with finance ministers from the region.

Yellen and other officials expressed confidence Saturday that the global tax deal has enough momentum to overcome domestic political obstacles in coming months. Three European countries noted for their business-friendly tax regimes remain holdouts: Ireland, Hungary and Estonia.

“We’ll start to work with countries that don’t agree starting Monday,” EU economic-policy chief Paolo Gentiloni said. “Based on contact I’ve had with these countries the possibility of a deal is there.”

One missing element from the communique regarded a proposed redistribution of $100 billion in IMF Special Drawing Rights to aid poorer African nations. While that measure was was endorsed by the Group of Seven last month, the G-20 only specified support for a general reallocation of $650 billion in SDRs sought by the IMF board.

Despite the prominence of analysis on global economic prospects, officials didn’t say much about inflation threats either. That’s all the more remarkable because many central bankers present have separately specified the mounting risk of a consumer-price shock.

“We are also going to move into a higher inflation regime,” Philip Hildebrand, vice chairman of BlackRock and a former president of the Swiss National Bank, told Bloomberg Television on Friday. “It will take some time to settle, so I don’t think we should pay attention to the very short-term numbers, but inflation will move higher as we go through this transition phase.”

(Updates with comment from IMF’s Georgieva.)

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