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G20 finance ministers aim for an action-oriented summit
Media overplaying country differences
A boost in international emergency funds and agreement on financial-markets oversight likely will be among the concrete results of the April 2 meeting of the world’s major economic powers.
Leaders of developed and developing economies that make up the Group of 20 (G20) are scheduled to meet April 2 in London to consider measures aimed at addressing the recession and financial crisis. Worsening economic conditions have added urgency to the meeting, which is expected to build on the principles agreed to by the leaders at their November 2008 meeting in Washington.
The final document of the London summit is likely to be more action-oriented, observers say, but its language broad enough to make sure that everybody agrees.
“Nothing forceful can emerge from such a large group with divergent views,” said Adam Lerrick, a senior scholar at the American Enterprise Institute, a policy research group in Washington.
Lerrick, like many, expects one of the few concrete results to be a pledge to boost resources of the International Monetary Fund (IMF) to help countries particularly affected by the crisis to meet financing needs. The United States, the European Union and Japan already have vowed to increase the fund’s lending capacity.
But some analysts expect more. John Kirton, director of the G8 Research Group at the University of Toronto, said a tentative consensus on several key issues at the March 14 G20 finance ministers’ meeting indicates that the summit can lead to significant changes in the way financial companies do business.
At that meeting, the G20 members agreed in principle to reform their financial systems, including making all markets, products and large firms subject to regulatory oversight and enforcing this oversight across borders.
However, how to update global financial business rules when regulation remains national is a difficult question, many analysts say.
American drift or Euoopean thrift?
Many analysts believe that several major economies, particularly those with large trade surpluses such as Japan and Germany, need to promptly come up with more ambitious economic stimulus measures to increase odds for a global recovery. If they do not, the summit is likely to be seen as a disappointment, they say.
As of mid-March, the United States has committed to stimulus spending close to 6 percent of gross domestic product and China around 5 percent, with France at less than 1 percent, Japan around 2 percent and Germany almost 3.5 percent, according to Eswar Prasad of the Brookings Institution, a policy research organization in Washington.
The G20 members have different views of the source of the current crisis and therefore different views of what recovery efforts are necessary.
The media have focused on divergent priorities of the United States and continental Europe, primarily Germany and France. While U.S. and United Kingdom leaders have called for much more robust fiscal measures, some European leaders have pressed for action on “re-founding” of the international financial system, as French President Nicolas Sarkozy puts it, on the basis of cross-border regulation.
A U.S Treasury official, who did not want to be identified, said the media overplay the differences and the two sides achieved a great deal of convergence between their positions at the finance ministers’ meeting.
In the communiqué that came out of that meeting, the G20 members agreed to boost spending for as long as necessary, preferably in a concerted fashion, and to put the IMF in charge of identifying those not doing their part.
“We don’t want a situation in which some countries are making extraordinary efforts and some others aren’t in the hope that those who are taking those important steps will lift everybody,” President Obama said at a March 24 news conference.
Some differences between trans-Atlantic partners remain
The Europeans resist the American pressure for more government spending, Lerrick said, because they are suspicious of the cure — spending — that is so similar to the cause of the problem. They also argue that their social safety-net programs automatically pump more government spending than do those in the United States and that they cannot risk destabilizing their economies by increasing public debt.
But many U.S. analysts reject these arguments, particularly in regard to Germany, one of the world’s top economies and exporters.
“Germany is in denial,” said Desmond Lachman of the American Enterprise Institute, if it believes it has done enough.
According to Kirton, the trans-Atlantic debate about anti-recessionary policies misses an important point. Stimulus measures make sense as long as they are accompanied by initiatives to unfreeze credit markets. “It doesn’t make much sense to pour money into one end of the hose if you have constrictions somewhere down the hose,” he said.
Kirton said expansive monetary policies in the United States and the United Kingdom aimed at stimulating lending and economic activity have not produced desired results so far because of constraints on credit in the banking industry.
In recent weeks, the Obama administration has announced measures to clean up banks’ balance sheets as a way to get them to restore lending.