G20 leaders claim summit success

Financial Times Editorial Comment: The first bricks in a new world order
Copyright The Financial Times Limited 2009
Published: April 2 2009 19:31 | Last updated: April 2 2009 22:44
http://www.ft.com/cms/s/0/20ac6c32-1fb3-11de-a1df-00144feabdc0.html


Some useful progress, but still a way to go. That must be the conclusion of the Group of 20 summit in London. Gordon Brown, UK prime minister and chairman of the meeting, set out a six-point plan to save the world. This reflected some real achievements: a generous increase in funding for the International Monetary Fund, a new issuance of special drawing rights and a boost for trade finance. He sounded disappointingly thin on other key areas – notably cleaning up banks and future fiscal stimulus. More detail would have been reassuring.

Mr Brown cast the G20 meeting as part of a co-ordinated “fight back against the global recession” and said the “global crisis requires a global solution”. We may doubt aspects of the solution, but the crisis is undeniable. World growth is expected to decline this year for the first time since the second world war. The World Trade Organisation expects that trade will fall by 9 per cent – a worrying prospect.

It has also become clear that this crisis will not soon burn itself out. An important part of John Maynard Keynes’ works was his explanation of how economies could be caught in low growth traps. The longer the recession, the greater the destruction of happiness. An extended downturn will also increase the risk of the crisis expanding and deepening far beyond its current spread. In new democracies, whether in Africa or central and eastern Europe, this is a moment of genuine peril. In some poorer countries, it could even lead to war and famine.

One particular risk is a potential financial crisis in emerging markets, which could spread rapidly through a region. The prospect of this is stronger the longer recovery is delayed. Countries have already sought help from the IMF recently. More could follow. It is essential that the Fund has the resources to prevent local problems becoming international. A financial crisis in eastern Europe, for example, would be miserable enough. But it would transmit losses through banks across Europe. The world does not need another subprime crisis.

The G20 pledge to increase the IMF’s resources by $500bn, therefore, is extremely cheering. Some of the money had been allocated already. Nonetheless, it is an important achievement and a welcome sign that national governments see the role that such international institutions can play.

The proposed new issuance of $250bn of special drawing rights by the IMF would increase the world’s pool of reserve assets, freeing the hands of emerging and developing economies. It, too, is an excellent idea which will increase global liquidity.

The plan for $250bn over the next two years for trade finance is also welcome. The proposal is larger than expected, but is mostly drawing together existing programmes. It will be delivered through export credit agencies, investment agencies and development banks.

There is little to report on fiscal policy. No one country’s stimulus can rescue the world from the mire; the US is not in a position to revive world demand on its own – again. While deficit countries, such as the US and UK, must expand demand, the surplus countries must do their part and expand domestic consumption by more. The world needs to increase demand without increasing its imbalances.

The communiqué offers little credible commitment to this end. Perhaps it was unrealistic to expect much more. Arguments about stimulus generate much more heat than light; even apparently miserly Germany has committed to a large stimulus programme. The IMF has been invited to “assess regularly the global actions required” to “accelerate the return to growth”. If the IMF is robust, this might prove a useful mechanism for asserting accountability.

The weakest part of the package is the financial element. Banks are still gravely wounded. The financial crisis lit the fuse for this recession. It may also prolong the fire; the crisis will last much longer if major countries refuse to clean up their banks. Given the range of countries at the G20, a one-size-fits-all bank rescue policy was never feasible. But the absence of detail about a common approach to cleansing the banks of their toxic assets is extremely disconcerting. Stating vague commitments only serves to create fears that little substance lies behind the words.

The world is better for having held this summit. The possibility of dangerous contagion is lower and useful progress has been made across a range of issues, from the need to keep trade free to IMF quota reform. But leaders must remember that the crisis, which started in the banking system, will not be resolved until the banking system itself is fixed. That is where they must turn their attention now.




Summit success reflects a different global landscape
By Philip Stephens
Copyright The Financial Times Limited 2009
Published: April 2 2009 19:12 | Last updated: April 2 2009 19:12
http://www.ft.com/cms/s/0/b0b0c13c-1fb0-11de-a1df-00144feabdc0.html


The London summit was not, after all, a flop. More than that, the gathering of 20-something world leaders was a substantial success. It is true that, for all his diligent diplomacy, Britain’s Gordon Brown could not claim to have saved the planet. Yet historians will record the summit as the moment when a world in the throes of economic and geopolitical upheaval took a first, hard look in the mirror.

Those who view politics as an event rather than a process will have been disappointed. So also will those expecting, or pretending to expect, that the summit would fix the global economy. The world is too complex for the instant gratification demanded by 24-hour rolling news channels.

The final communiqué was replete with the linguistic fudges that speak to a difference of diagnosis and remedy for the world’s economic ills. The grandstanding of France’s Nicolas Sarkozy and the no-nonsense fiscal conservatism of Germany’s Angela Merkel handed ammunition to anyone in search of discord.

To have expected anything other than this of the summit, however, was to misunderstand the nature of politics and the scale of the challenge. Mrs Merkel was stating the obvious when she said each of the leaders was determined to defend his or her own national interest. It was ever thus.

The summiteers had their own historical and cultural reference points. Many of the differences defied the obvious boundaries between west and east, between old and rising powers.

Thus, in considering measures to promote recovery, Germany recalls the ruinous consequences of the inflation of the Weimar Republic. The US looks back to the same era, but uppermost in President Barack Obama’s mind is the human misery of the Great Depression.

These gatherings cannot erase such differences. The purpose is to align, as far as possible, national and mutual interests. In hauling the leaders some way in this direction, Mr Brown is due his plaudits.

I cannot claim an inside track on the course of the international economy. But for the short term everyone agrees things will be bad – not least in the world’s poorest economies. On the other hand, I am unpersuaded by the prophets of doom who think we are rushing headlong towards economic Armageddon.

The banking system still needs to be fixed. As Dominique Strauss-Kahn, managing director of the International Monetary Fund, has warned, many banks are still hiding toxic assets. The Fund is warning, too, of a potential financial crisis in eastern and central Europe. The collapse in world trade is a measure of how quickly bad news ricochets around the global system.

Measured by what was “brand new”, the summit’s achievements were modest. Yet the proper gauge of success was how far the leaders had travelled during the past few months. The answer is quite a distance.

Mr Strauss-Kahn observed that in spite of recent spats the leading economies had, by and large, met the Fund’s call for a fiscal boost of 2 per cent of global output. Alongside it, the world has seen an unprecedented monetary stimulus, with interest rates as close as it matters to zero. More stimulus may be needed, but for now that argument is an artificial one.

The communiqué also includes a huge injection of funds to increase the firepower of the international financial institutions so that they can prop up emerging economies and support trade. The numbers here were higher than even some optimists had hoped for. I leave to the accountants an assessment of the statements on bank regulation and tax havens. Something on those issues needed to be done, if only for politics’ sake. But a clampdown on bank accounts in Liechtenstein is not the most urgent task.

Those who dismiss the summit have to consider how much of the convergence would have occurred without the focus of this week’s meeting. Not much, I suspect.

The summit’s deeper significance, though, lay in its unspoken recognition of the remaking of the geopolitical landscape. Not so long ago, this would have been a gathering of the Group of Eight rich nations, perhaps with cameo roles for China, India and a few others. Now, Hu Jintao, Manmohan Singh and the rest take their places as of right. The world, in other words, is at last catching a true reflection of itself.

Mr Obama has been more alert than most to this shift. Europe speaks the language of inclusiveness but is genuinely fearful of giving ground to the rising powers. Mr Sarkozy’s petulance is more a cry of pain than a measure of confidence.

By contrast, the US president has grasped that if America is to hold on to its pre-eminent role in the world it will be within a system in which others have a stake. Mr Obama shows wisdom beyond his years in realising that to understand the extent of US power – and it is still unrivalled – a president must also map its limits.

The road ahead will be bumpy. Whatever Mr Obama’s intentions it will be hard for the US to break the unilateralist habit, not least because many of those who demand that Washington share power also expect it to pick up the tab for global security. The hesitation of many of the old powers to cede power is matched by the reluctance of the rising nations to assume the burdens. China wants recognition of its great power status through a bigger say in international institutions. But while this week saw Beijing in more assertive mood, it is still minded more to say what it dislikes than to offer its own answers. India is even less inclined to accept that prestige carries responsibilities.

The so-called Group of 20 – I counted 29 delegation heads round the dining table in 10 Downing Street – is a cumbersome grouping. Its reach gives it legitimacy, but at the price of operational efficiency. A smaller grouping – say, of 15 – might yet be a better answer.

Whatever the imperfections, the process promises to embed the habit of multilateralism in a multipolar world. History reminds us that big shifts in global power, such as we are witnessing, often end in war as rising states challenge the status quo. A few arguments about tax havens or bank regulation are a small price to pay for a peaceful transition.

Managing the Sino-American relationship during the next decade will require extraordinary statesmanship on both sides. Europe still has to find a path out of its present state of denial. The rising nations will not easily shed their suspicions of the west. So, yes, there will be fissures and fractures. It will take more than a summit or three to conjure a new global order. But looking hard in the mirror is as good a place as any for the leaders to start.

Send mail to philip.stephens@ft.com







G20 leaders claim summit success
By George Parker, Chris Giles, Edward Luce and David Oakley
Copyright The Financial Times Limited 2009
Published: April 2 2009 19:11 | Last updated: April 2 2009 21:12
http://www.ft.com/cms/s/0/082652de-1fb0-11de-a1df-00144feabdc0.html


World leaders on Thursday heralded the G20 summit as the day the world “fought back against the recession” as they put on a show of unity that lifted global markets and mapped out a new future for financial regulation

Gordon Brown, host of the summit, said the meeting marked the emergence of a “new world order”, as he unveiled what leaders claimed was a $1,100bn package of measures to tackle the global downturn, including support for lower income countries and a $250bn plan to boost the international money supply.

Close inspection showed some of the $1,100bn pledged included reannouncements and half-done deals. However, even before the summit ended, equity markets rose sharply around the world on hopes that the global economy was stabilising.

In London, the FTSE 100 jumped 4.3 per cent to go through the 4,000 mark for the first time in six weeks while in New York, the S&P 500 surged more than 4 per cent to close up 2.9 per cent.

The leaders papered over divisions between the US and Europe over whether the world could afford a new fiscal stimulus, with US president Barack Obama describing the summit’s measures as “bolder and more rapid than any international response that we’ve seen to a financial crisis in memory” and predicted they would mark “a turning point in our pursuit of global economic recovery”.

France’s president Nicolas Sarkozy, meanwhile, said the summit’s agreement on a new regulatory regime and crackdown on tax havens showed “a page has been turned” on an era of post-war “Anglo Saxon” capitalism.

Although the summit ended with smiles, a row between China and France over the blacklisting of tax havens – including possibly Hong Kong and Macao – continued behind the scenes well into the day.

US officials say that Barack Obama helped broker a compromise over offshore tax savings between Hu Jintao of China and Nicolas Sarkozy of France, who had threatened to walk away from the summit.

Mr Sarkozy had objected to the absence of agreement to publish a list of offshore tax centres that were not in compliance with existing standards on transparency. With the exception of China, all other countries agreed that the Organisation of Economic Cooperation and Development would publish a list of offshore offenders in a “naming and shaming” exercise. In the end they agreed a compromise in which the G20 would only “take note” of the OECD’s list, rather than endorse it.

The summit text included commitments to curb “risky” bank pay and bonuses, but offered little new on monetary policy action or efforts to clean up bank balance sheets.

Of the $500bn of money pledged to the IMF to bolster struggling economies, some had already been announced and $250bn was a pledge of future funds.

In a new development, the G20 agreed to let the IMF create $250bn of Special Drawing Rights, its own currency comprising dollars, euros, yen and sterling, boosting the foreign exchange reserves of every country. Most of this cash will go to the big advanced economies, but poorer countries facing budgetary strains will gain new cash without normal IMF conditions.

Additional reporting by David Oakley



Handshake brokered by Obama saves day
By Edward Luce in London
Copyright The Financial Times Limited 2009
Published: April 2 2009 20:53 | Last updated: April 2 2009 20:53
http://www.ft.com/cms/s/0/b75c6726-1fbe-11de-a1df-00144feabdc0.html


Ultimately it boiled down to an Obama-brokered handshake between Hu Jintao and Nicolas Sarkozy, according to US officials. The reality may be more prosaic, and the agreement of a final summit text on Thursday was the culmination of weeks of work by officials from 20 countries. But Barack Obama’s self-effacing approach to summitry – one that was on Thursday remarked upon by several non-US officials – certainly did no harm.

According to senior US officials, towards the end of the summit Mr Obama pulled Mr Sarkozy and Mr Hu aside in full view of the plenary session with several officials and translators in tow.

The US president then brokered a compromise between his Chinese and French counterparts on an issue so arcane and inconsequential that it is hard to believe failure to have done so would have led to a collapse of the summit.

According to the account, confirmed by non-US officials, Mr Obama got the two leaders to agree that the G20 would “take note” of the Organisation of Economic Co-operation and Development list of rogue offshore tax havens rather than “endorse” that list.

This allowed the Chinese to save face, since they do not belong to the 30-member Paris-based OECD. And it allowed Mr Sarkozy to claim back home that he had chalked up a blow against Anglo-Saxon capitalism.

In fact everybody, including Mr Obama and Gordon Brown, the UK prime minister, who on Thursday declared an end to the “Washington consensus”, has been reading the funeral rites of old-style unregulated financial markets and Thursday’s nine-page communiqué spelt out some of the detail. More importantly for Mr Obama, he can now claim back home that he has led the global effort to tackle the global recession while staving off any attempt to pin the blame on the US.

Two further elements are worth noting. First there is nothing in the G20 communiqué that Mr Obama did not want and relatively little that he did not request. Most of the strong new regulatory measures that were spelt out yesterday were included in Mr Obama’s campaign rhetoric – not least the need to crack down on offshore tax havens, which recurred in most of his campaign speeches.

Many of the remaining regulatory details were enunciated last week by Tim Geithner, the US Treasury secretary, in a testimony to Congress on the administration’s plans to reform domestic regulation.

Mr Obama did not get as strong a commitment as he wanted from other countries to participate in a globally co-ordinated new round o fiscal stimulus. On that score, France and Germany successfully resisted pressure from the US, the UK and others to commit themselves to concrete numbers. But on issues of substance, such as reform of the International Monetary Fund, Thursday’s text contained pretty much everything Mr Obama had said he wanted.

Second, Thursday’s summit is unlikely to have much political impact back in the US, where attention is riveted on the rapidly escalating numbers of unemployed and the Obama administration’s inability, so far, to get private sector credit flowing. Thursday’s communiqué will certainly not undermine Mr Obama’s still high public approval ratings, which remain at above 60 per cent. But they are unlikely to boost his ratings either.

On Wednesday, Dominique Strauss-Kahn, IMF chief, told the Financial Times that the G20 summit was in danger of avoiding the most important issue of all – the need for all G20 members to repair bank domestic balance sheets.

Thursday’s communiqué did reference that need. But it remains a work in progress, not least in the US. Unless, and until, Mr Obama can fix that core problem, most Americans will view such summits as academic – if they are paying attention at all.




New York and Japan vie to host next G20
By George Parker in London
Copyright The Financial Times Limited 2009
Published: April 2 2009 18:56 | Last updated: April 2 2009 18:56
http://www.ft.com/cms/s/0/4002f566-1fad-11de-a1df-00144feabdc0.html


Even before the cavalcades started snaking out through London’s Docklands, world leaders were debating how to follow up on the G20 conclusions and planning their next rendezvous, with a fierce debate about whether it should be held in Japan or New York.

Gordon Brown has been a leading advocate of the G20 as a format, arguing that the old G8 club of rich, industrial countries was no longer an acceptable forum for directing world affairs. But the UK prime minister’s aides say that hosting one summit is enough for him.

There appears to be no shortage of world leaders willing to host the next summit, in spite of the fact that such meetings require intense diplomatic preparation and risk becoming the focus of violent anti-capitalist protests.

Japan has pushed hard to host the next meeting, while Australia and South Korea – the chair of the G20 in 2010 – have also expressed an interest. Nicolas Sarkozy, French president, has also offered to be the host.

Italy’s Silvio Berlusconi chairs a G8 meeting in Sardinia in July, to which emerging economies such as India and China are invited as part of a slightly patronising “outreach” programme.

The leaders have already agreed that this event is too early to take stock of progress arising from the London summit.

Mr Berlusconi confidently announced the next meeting would take place in the autumn in Japan and that US president Barack Obama was in favour.

But then Mr Sarkozy announced with equal certainty that the follow-up would be in New York in September.

If the next summit was held in New York it would coincide with the opening of the United Nations general assembly, so most world leaders would already be in town.

The convenience of time and location may trump concerns among some delegations that Mr Obama’s chairmanship might lead to the view that the G20 was being run by “Anglo-Saxons”, although British officials said a final decision had yet to be taken.

Mr Brown said the autumn G20 meeting would be a chance to look again at the fiscal stimulus measures already taken, following an assessment by the International Monetary Fund.

“The IMF will assess the action that has been taken and global action required,” Mr Brown said.

That could be the occasion for another clash between the US – which wants the world to spend more in the recession – and continental European countries, notably Germany and France, which believe they have done enough.

The meeting will also assess progress in implementing the range of financial regulatory reforms set in train at the Washington G20 meeting last November.