G2O April 2nd 2009 -Analysis & Consecquences,-
Which is what the G20 conference was supposed to be all about - except that the really hard structural stuff will be a sort of Banquo's ghost at the meeting, scaring the living daylights out of the government heads, colouring their debate, but not at the heart of it.
As Martin Wolf, the creation of an enduring economic settlement requires a formal recognition by the great exporting countries of China, Japan and Germany that their financial surpluses are our excessive debts - and that we will be a lousy market for the stuff they make until we've managed to reduce our deficits and have returned to full employment.
In other words they would benefit from reconstructing their economies so that they consume more of their income, because that would help us to reduce our indebtedness.
the world needs a new reserve currency, a supra-currency that floats above all national currencies, including the dollar, such that investors would have more confidence that it would retain its value even when a domestic economy as large as that of the US tries to inflate its way out of recession.
there'll be a nod from the G20 leaders that this is an idea worth considering.
A return of near-normal credit conditions would probably be significantly speeded up - to the benefit of all trading nations - if the bad bits of banks were in effect transferred to the balance sheet of the world as a whole, rather than weighing down the balance sheets of individual nations.
However, that's certainly an idea too far for this G20 meeting. Most business people and bankers would, I think, settle for an acknowledgement from the government heads that this meeting is just one stopping point on a long and arduous journey.
The current global financial crisis has become a result of collapse of the existing financial system due to a poor management, which overlooked significant risks.
Global financial regulatory institutions failed to adequately respond to the developments in recent years, which confirmed that their activities do not meet the requirements of the today’s multipolar world. Due to the lack of instruments to prevent and minimize the consequences of crises or tools to influence strategies applied by market actors, the world has faced serious economic shocks and, as a result, an increased global social instability.
It becomes even more difficult to provide comfortable housing, education, quality health care or even food to a sizeable proportion of humankind. Global economic growth that took place during the recent years barely affected the living conditions of the poorest population groups because of the crisis.Russia proceeds from the assumption that, under globalization, a normal functioning of global economy requires a stable and predictable international monetary and financial system functioning in accordance with pre-determined rules and based on macroeconomic and financial discipline maintained by major global economies. The current crisis has demonstrated that maintenance of such a discipline remains a task which still has to be fulfilled both by sovereign States and leading companies active on global markets.
We believe that a new International Financial Architecture should be based on the following principles:
- compatibility of activities and standards of national and international regulatory institutions;
- democracy and equal responsibility for decision-making;
- achieving efficiency through legitimacy of international coordination mechanisms;
- transparency of all participants’ activities;
- fair risks distribution.
1. Regulating macroeconomic and budgetary policies2. Promoting domestic demand during the period of crisis
3. Regulation and supervision
4. Reforming international monetary and financial system
5. Reforming international financial institutions
6. Development financing 7. Financial literacy of the population
8. Implementing the energy efficient growth concept
China greets G20 results with cautionChina gave a more cautious welcome to the results of the meeting.
In the absence of the sort of presidential press briefing that many countries conducted, Chinese officials on Friday listed a number of their own achievements from the London summit, however they also acknowledged some of China’s main priorities were not addressed.Officials said they were pleased with the announced reforms of the International Monetary Fund, which include the end of the Europe-US monopoly on the leaders of the IMF and World Bank and the promised reform of the quota system to give China a larger say. While Gordon Brown, UK prime minister, said China would inject $40bn (€30bn) to the IMF’s coffers, officials said the details of China’s contribution were still under discussion.
More generally, if the headline numbers about funding for the IMF and the boost to trade finance materialise, economists said this could be very beneficial to China’s export machine.
Against that background, however, some of the most important issues for China saw little progress at the London summit. The commitment to avoid protectionism, one of China’s biggest fears, was relatively vague, and having already announced a large fiscal stimulus plan for the next two years, China was hoping for more action on this front from other countries.
China signalled in the run-up to the summit that it wants to throw its weight around a lot more in international economic affairs, however the sorts of priorities that China will defend remain unclear. The London summit gave some clues.
The dispute over tax havens, which only ended after Mr Obama brokered a compromise between France and China, illustrated how strongly China will defend its sense of sovereignty in economic issues.
China has generally supported the G20 push to strengthen financial regulation – President Hu Jintao would have no problems with Mr Sarkozy’s claim that the days of the “Anglo-Saxon mode” are over. However, China has mostly supported measures that would boost regulation in western countries, such as controls on hedge funds and ratings agencies. Mr Hu’s opposition to publishing a list of tax havens that might include criticism of Hong Kong and Macao indicates China’s reluctance to see a new international regulator that might influence its own financial system.
Diplomats say there was another factor. Both China and India, they claim, fear that any new international financial watchdog will be dominated by Europe and the US, in the way the IMF and World Bank has been.
G20 results in a bit more order rather than a 'new world order'There is a risk that the inflated rhetoric on the summit may encourage complacency, writes CHRIS GILES .
A DAY after Gordon Brown declared the G20 summit had created a “new world order”, economists and policymakers agreed the outcomes of the London summit were useful but stopped short of endorsing the British prime minister’s vision. It may be too early to tell.
Meeting in Brussels, finance ministers from euro-zone countries rushed to endorse the communique with European Central Bank president Jean Claude Trichet, expressing the hope that the consensus reached “is an important element of confidence”.
A final verdict on the summit’s outcome, however, comes across an age-old problem for economists that the success or failure depends on the time period of comparison, prior expectations and what would have happened had the G20 not agreed to meet in London.
To this there can be no definitive answer. But it is apparent the world economic order was little different on April 3rd compared with April 2nd, since much of the International Monetary Fund’s (IMF) resources, the main achievement of the summit, had already been agreed.
Since more will be needed, says Prof Charles Wyplosz of the Graduate Institute, Geneva, the inflated rhetoric and declarations of a new world order “lessen the pressure on governments to work harder . . . It would be a tragedy that the summit ends up encouraging complacency.”
To claim a triumph for the G20 on the basis that such agreements have been struck is too charitable.
Logically it suggests countries would have sat idly by and done nothing as the crisis raged and that their longstanding commitments to give adequate funding to international organisations such as the IMF were not worth a candle six months ago.
The London summit does not mark the end of the world financial crisis or the recession that has resulted, economists note. Morris Goldstein of the Peterson Institute for International Economics graded the summit “a solid B”, saying it was “good but not great”.
Nevertheless, the increase in IMF resources is welcomed for the additional firepower it gives the fund if the crisis spreads.
The importance of money for trade finance is confusing economists at the World Bank.Writing on the bank’s crisis blog, Simeon Djankov, a senior economist, admits the money is something “I don’t get”, since he notes there is “no evidence [trade finance] is a real bottleneck to trade”.
London G20 Results: "More Ambitious Than Expected"President Barroso's Remarks At Press Conference
This has been a defining moment for the world's crisis response. I pay tribute to Gordon Brown and Great Britain, which has shown its true qualities in the organisation and success of this summit.
Our concern is people's jobs, prosperity and futures, and we have delivered decisions to protect these.
We have taken responsibility to map a way out of this crisis. To re-build the confidence and credibility we need to put the world economy back on track. Swiftly, with determination and with unity.
The European mark is clear in the conclusions. With our friends and partners, a united EU is driving this process. We have met the five tests I set prior to the summit.
First, do what is necessary to restore jobs and growth – we are ensuring a coordinated fiscal stimulus;
Second, repair and strengthen the financial system. There can be no shadow banking system, no shadow economies – we are ensuring a confidence stimulus;
Third, strengthen our global financial institutions and their resources – we are ensuring a governance stimulus;
Fourth, a rejection of protectionism and a commitment to open markets and to a Doha deal – we are ensuring a trade stimulus;
Fifth, we have committed to a sustainable, low carbon recovery for all. We need action to make sure the poorest of the world do not pay for a crisis created elsewhere – we are ensuring a development stimulus.
Europe will continue to shape the recovery with concrete steps.
Next week the European Commission will frontload aid for developing countries.
On 21 April we will come forward with initiatives on executive pay, hedge funds and private equity;
On 7 May – we will define common principles to preserve and create jobs at the employment summit;
Still in May, we will propose the new financial supervision structures so that EU leaders at their June European Council can agree on the architecture that we want in place by 2010;
We have agreed to work with our G20 partners for a breakthrough on Doha in la Maddalena in July, where the G-8 will meet with leaders of key emerging countries.
The decisions taken today are much more ambitious than was expected. That is the result of hard work but also of the spirit in which the discussions were conducted.
This is not a collection of individual initiatives but a collective action. I am delighted to see that the decisions taken by the European Union at the European council on 19-20 March are very well reflected in today's conclusions.
Those conclusions are a real signal of energy and coordination.
There can be no miracles. But citizens can wake up tomorrow knowing that things will change. We will not allow this crisis to happen again. And in the coming weeks and months we will implement the necessary steps to repair our global economy and get it back on its feet.
We have said what we will do; now we will do what we say.
TUC welcomes G20 resultsWorld leaders who gathered at the G20 summit this week have "delivered real progress" on important issues, the Trades Union Congress (TUC) has said.
The union welcomed proposals outlined in the summit communique and added that the plans "should offer hope" to recession-hit people around the world.
Brendan Barber, general secretary of the TUC, said: "This summit has delivered real progress in crucial areas with tighter regulation of the financial system, a crackdown on tax havens and a major boost in support for the poorest countries.
"These mark a break with the failed policies of previous decades … We now look to the G20 governments to build on the progress made and honour the commitments made in London. Here in the UK we now need to see a relentless focus on the battle against unemployment."
One of the plans listed in the communique include stricter regulations on the work done by people in banking jobs.
Venezuelan President Hugo Chavez has harshly criticized the plans to overcome the global financial crisis announced by G20 leaders after their summit in London.
“I did not expect that such unreasonable and silly decisions would be taken at the G20 summit,” said in a telephone interview with Venezolana de Television.
The leaders who met in London on Thursday agreed to allocate $5 trillion by the end of 2010 to resolve the global economic crisis, with one-fifth of the funds going to the International Monetary Fund and other financial institutions.
Speaking during a visit to Iran, Chavez said the decision to give the money to the IMF was senseless and would only make things worse, going on to criticize declarations of increased financial regulation.At the summit there was a lot of talk about strict regulation of financial markets, but they are worth nothing. You have to understand, it is impossible to regulate the financial monster spawned by the capitalist system,” Chavez said. According to an aide, Russian President Dmitry Medvedev, who was among the leaders of industrial and developing countries at the summit, welcomed the decision to inject funds into the IMF, but said such a move should be contingent on reform of it and other international financial institutions.
Canada Fin Min: G20 Results Exceeded ExpectationsThe results of the summit of Group of 20 industrialized and developing nations in London this week "exceeded expectations," Canadian Finance Minister Jim Flaherty said Friday.
Speaking to business leaders in London, Flaherty also said that Canada is focused on efforts to fix the banks and financial markets, prevent protectionism and ensure there is sufficient fiscal stimulus to revive global growth.
"The number one issue is fixing the banks internationally," he said.
G20 leaders Thursday agreed on a $1 trillion stimulus package, which was targeted at supporting growth in the developing world.
Flaherty added that, while Canada's economy is in recession and the "challenges are not yet over," with gross domestic product contracting by 0.7% on a monthly basis in January, "we are closer to the bottom."
He said it wasn't the time for additional fiscal stimulus in Canada aimed at boosting the economy next year, and it was necessary to wait for existing measures to work through the system, saying that steps taken in January were focused on stimulus now.
There's "no point" in spending an extra C$20 billion next year. "The unemployment pressure is now, so we need to act now," he said.
The Bank of Canada currently forecasts GDP to shrink 4.8% at a quarterly annualized rate in the first quarter, but that is broadly regarded as being optimistic.
The central bank has cut its key policy rate to 0.5%, but officials have so far been tight lipped about unconventional monetary easing methods, other than to say a framework for their possible will be released in the bank's April 23 monetary policy report.
Flaherty also said that reduced corporate tax rates in Canada's provinces and harmonized sales tax rates were a "great step forward." Corporate tax rates have been reduced in a number of provinces with Ontario cutting its rate last last week. "This is very important," he said.
At a joint news conference with the British Prime Minister Gordon Brown, he said: “I am absolutely confident that this meeting will reflect enormous consensus about the need to work in concert to deal with these problems I think that the separation between the various parties involved has been vastly overstated.”
It follows comments from the French President that he is unhappy with the measures “on the table” for the summit.
Sarkozy has put the cat among the pigeons
Nicolas Sarkozy has said he will “walk away” from the meeting if he cannot get an agreement on international financial regulation.
But President Obama said: “I understand that when you have a bunch of heads of state talking, it is not usually that interesting, the communiques are written in dry language, and so there is a great desire to inject some conflict into the occasion.
“But the truth of the matter is, I think that there has been an extraordinary convergence of opinion.”
Gordon Brown also played down the differences.
“Let me add that I am confident that Nicolas Sarkozy were not only be here for the first dinner but will still be sitting as we complete our dinner this evening,” he said.
“We are within a few hours of agreeing a global plan for economic recovery and reform,” he added.
Asked if he was disappointed that other countries were less than enthusiastic about another fiscal stimulus, President Obama said America alone “could not be the engine” to drive the world’s economic recovery.
“Everybody is going to have to pick up the pace,” he added.“I think that there is a recognition based on the conversations I have had with leaders around the world that that is important,”