Financial Reform Watch

If the World Economic Forum in Davos was supposed to be an indicator of the progress that politicians, regulators, and corporations can make in coalescing around a common, global, and coherent response to the crisis, then observers may be forgiven for being low on optimism at present.

The annual Davos events have become perhaps the most important gathering of world leaders and decision-makers that take place outside the sphere of traditional diplomacy and international organizations. Non-private gatherings, like the G20, normally lend themselves to more carefully coordinated and rehearsed declarations and conclusions for the governments involved. The Washington G20 meeting in November was widely regarded as a success in terms of the involved governments being able to agree on a common roadmap to address the financial crisis and also managing to communicate their agreement successfully. The value of such displays of unity cannot be underestimated when the deterioration in the economy continues to accelerate.

Davos, on the other hand, created an impression that the weakening economic outlook is putting a strain on states’ commitment to the Washington accords, putting in doubt the viability of the whole process. It will therefore be important for leaders to carefully manage the road to the G20 summit in London on 3 April, at which a large number of concrete and global measures normally should be adopted to tackle the crisis.

At the EU-level, Angela Merkel has invited the four members of the G20 -- Germany, France, Italy and the UK -- to a meeting on 22 February to coordinate their position ahead of the London summit.  While there is no doubt that such a meeting will be necessary, Merkel’s decision to exclude Spain and the Netherlands from the meeting will be seen as a provocation in Madrid and Amsterdam. The two countries, in the end, managed to elbow themselves into the EU’s G20 delegation in November. French President Nicholas Sarkozy, on the other hand, would have preferred a meeting of the larger Eurogroup plus Britain.

While perhaps too much energy is spent agreeing on the invitation lists for the different EU meetings, serious and far-reaching proposals are being debated in parallel. Italy, for instance, is expected to re-table the idea of issuing common EU bonds or EU-backed government debt, a measure that no doubt would be welcomed by Italians but equally un-welcomed by the Germans.

Given the changeover from the Bush to Obama Administrations in the United States, Americans did not have much representation in Davos. Former President Bill Clinton showed up to stress the importance of philanthropy during tough economic times, and former Vice President Al Gore came to push his green agenda. Leading the small delegation from the current administration was Valerie Jarrett, long time Obama friend and White House Senior Advisor and Assistant to the President for Intergovernmental Relations and Public Liaison. President Obama’s chief economic aides remained stateside.  Acting U.S. Trade Representative Peter Allgeier spent his time in Davos trying to quell fears that “Buy American” provisions in the U.S. economic stimulus package would spark a trade war. The U.S. strategy for the April G20 meeting should emerge in the next few weeks as Congress moves past the stimulus package and key Obama aides settle into their new posts.