Buck-passing augurs ill for G20 summit
The foreplay to next month’s G20 summit is degenerating into a buck-passing exercise rather than crafting a Grand Bargain to save the world economy and regulate capitalism.
The industrialized powers do not agree on how to arrest the steep slide in output, how to handle collapsing banks, how much market regulation is needed, how to reach a world trade deal and prevent protectionism, or how to redistribute power to emerging nations in exchange for their money.
At this rate, the April 2 London summit — U.S. President Barack Obama’s global economic debut — is highly unlikely to restore confidence.
The United States says other countries must follow its lead and spend more on a fiscal stimulus to boost demand. It is turning a deaf ear to calls for radical financial regulation. Euro zone finance ministers, anxious to preserve the budget discipline that underpins their common currency, are refusing to pile up more debt before their current stimulus efforts have taken effect.
The EU seeks a doubling to $500 billion of the International Monetary Fund’s war chest to bail out countries in trouble, including in eastern Europe, and it wants China, Saudi Arabia, Russia and others to pay most of the tab. Yet there is little sign the Europeans are willing to accept a diminution of their IMF seats and votes to make room for the emerging economies.
Washington and London are resisting pressure from France and Germany for mandatory regulation of all financial markets and institutions, including hedge funds and private equity.
The key trade-offs required involve Germany and China pumping more public money into their economies to boost demand in return for the United States and Britain accepting global rules for regulation of all markets; and the industrialized nations agreeing to yield more power to emerging countries in the IMF, and welcome them into the Financial Stability Forum, in exchange for contributions to bolster the bail-out fund and acceptance of an ambitious world trade liberalization deal.
One of the few items on which there is at least rhetorical agreement is a crackdown on tax havens. This is politically useful to show concern for social justice (and improve revenue collection) at a time when unprecedented amounts of taxpayers’ money are being poured into salvaging banks. But it is hardly the central priority in overcoming the worst financial crisis since the Great Depression.
G20 finance ministers must make substantial progress this week toward a Grand Bargain encompassing a coordinated fiscal stimulus, financial regulation, progress on trade, more money for the IMF and more say for the emerging nations.
Otherwise the London summit may go down in history as a milestone on the descent into depression.