Financial Reform Watch

An Agreement and a Commitment to Deliver

International summits are frequently more about atmospherics than they are about substance. The G20 meeting just concluded in London was no different from the norm. On a substantive level, the most consequential outcomes were the $750 billion in IMF capitalization ($500 billion in loans and guarantees and $250 billion in Special Drawing Rights) to aid emerging nations, $250 billion in trade credits from the IMF, and $100 billion in loans from other multilateral institutions. Certainly a substantial allocation of resources, but hardly a package that required heads of government for approval.

What did require the presence of the leaders of these nations was the display of common purpose that emerged from the meetings. While no concrete steps were agreed to, the mutual commitments to expand trade, tighten financial regulation, establish global monitoring systems and support greater transparency in executive compensation demonstrate a recognition of many of the key elements that led to the current crisis. The communiqué issued at the conclusion of the meeting touches on all these issues.

While not a crucial issue in the discussions, the matter of regulation of tax havens came into focus in the American media because of President Obama's reported role in bridging a divide between French President Nicholas Sarkozy and Chinese Premier Hu Jintao. According to an account from the White House that was corroborated by French and German government sources, Obama pulled the two leaders aside, first separately and then together, to negotiate a language change that papered over the differences that had emerged between the two during the group discussions. American media have reported widely on this sideshow because it is viewed as reflective of the difference in style between this U.S. President and his predecessor.

As expected, the issue of stimulus spending received scant attention in the final product of the meetings. The Obama team beat a tactical retreat on that issue as it became clear their efforts to push for an agreement on stronger stimulus would not succeed. The efforts to increase fiscal spending received strong support from the Party of European Socialists’ President, Poul Nyrup Rasmussen, who commented that the failure to agree a new stimulus was a major disappointment and that European conservatives Sarkozy and Merkel had blocked what the world most urgently needs: a new stimulus to create jobs.

Whether or not the meeting was a success will be for history to judge. If one looks at the concrete results, it is hard to see how the meeting produced any immediate change on the issues lying at the core of the current financial problems in the G20 countries. Further joint action in all areas discussed in London will likely be required. However, the meeting succeeded in clarifying that these key leaders are on the same page as to the fundamental issues needing attention and on the importance of working together globally. As regards the EU, the G20 agreement will probably act like a booster for the many and far-reaching policy proposal that the Union has under way. The extra momentum created by the commitments made by the leading European states at G20 will allow the EU to continue its vast reform program.

Financial markets appear to have been cheered by G20—for the time being. It remains to be seen how the individual leaders will act on the principles discussed in London once they return home.

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