Pre-G20 Stress
On Monday's post, we pointed out the potential for posturing at the G20 due to the high stakes and the short-meeting format. On Tuesday, French President Nicholas Sarkozy threatened to walk out of the meeting if there was not agreement on strong international regulation of financial markets.
The draft communiqué for the meeting, which has been circulating for several days, includes a call for broader regulation of hedge funds and other financial firms and products but leaves unclear how strong international regulatory bodies would be in relation to national ones. President Obama is certain to resist any effort to include language that would suggest placing an international body in a superior position to US agencies. If Sarkozy were to make good on his threat, it is difficult to predict who would be injured.
The most concrete piece of business to emerge from the G20 may well be the pledge to add $500 billion to the International Monetary Fund (IMF) credit facility. The United States is pledging $100 billion towards the total, but it is unclear if that will be accepted as an adequate figure from the US and how much will come from other nations. The US appears to be pushing for a substantial EU contribution in that a significant part of this facility is likely to be used for Eastern European countries. Will the G20 meeting result in the $500 billion being fully subscribed?
With only one day left before G20, the summit's host, Gordon Brown, is thus doing his best to downplay the differences among his guests. While the G20 countries appear to agree that their problems have common causes that warrant joint responses, they at present seem unable to sing from the same hymn sheet. It could be argued that the citizens of the G20 countries have the right to expect more from their leaders in terms of striving towards a common accord as per their commitment made in Washington a few months back.
As if any further reminders about the seriousness of the crisis were necessary, the OECD yesterday issued its latest economic assessment, predicting an unprecedented 4.3 percent contraction in the 30 richest economies this year with unemployment reaching double digit figures. World trade is expected to decrease by 13.2 percent in 2009.
Besides the drama surrounding Sarkozy, warranted or not, G20 may tell an important story about the degree of cooperation between the leaders gathered in London.
