Saturday

23rd Mar 2019

Great expectations ahead of G20 summit

World leaders from the Group of 20 industrial nations will gather in London on Thursday (2 April) to discuss ways to deal with the financial crisis but failure to reach a meaningful agreement and massive protests planned to coincide with the event threaten to destabilise the situation further.

The meeting represents the latest attempt to deal with the current imbroglio that has kept bureaucrats working hard since a G20 leaders' meeting in Washington last November, with stimulus spending and improved financial regulation set to top the agenda.

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  • G20 leaders met for the first time in Washington last November (Photo: French EU presidency/Laurent Blevennec)

Recent calls by the US administration for a co-ordinated global stimulus plan met with a cold reception in European capitals where politicians are increasingly wary of negative market reactions to their burgeoning budget deficits.

Last Wednesday, the Czech Republic's ex-prime minister Mirek Topolanek whose country holds the rotating presidency of the EU said US spending plans amounted to "the road to hell." The following day he was forced to resign due to unrelated domestic squabbling.

Since then the commission president Jose Manuel Barroso has moved to sooth the situation.

"The Americans accept that there has to be a reform of the financial sector. So I really think that we are thinking along the same lines – and this is new," said Mr Barroso on Thursday.

The EU debate on reforming financial regulation has been largely shaped by a report commissioned by Mr Barroso from a group of financial experts headed by former governor of the Bank of France, Jacques de Larosiere.

The report calls for a new European body to gather information on systemic risks to the EU economy as a whole, coupled with greater oversight and co-ordination between national regulators that monitor individual banks and insurance companies.

The US has an equivalent plan but how these will marry at the global level remains unclear.

"Markets are global and high standards at home need to be complemented by strong international standards enforced more evenly and fairly," US treasury secretary Tim Geithner said last week, signalling that purely domestic solutions would not be enough.

A greater role for the International Monetary Fund is one proposal with significant backing. G20 finance ministers and central bank governors agreed on 14 March on the need to reform the multilateral lender and bolster its funds but stopped short of producing a concrete figure.

Likewise leaders may call for reform of the 2004 Basel II accords, a set of general principles for national regulators whose central tenet that banks should hold a minimum of 8 percent capital relative to investments is now considered to be too low.

A decision on tax havens is also expected, despite recent capitulations by countries such as Switzerland to abide by the Organisation for Economic Cooperation and Development's rules on sharing banking information.

Extended agenda

Both EU commissioner for trade Catherine Ashton and World Trade Organisation director-general Pascal Lamy made calls last week for the G20 leaders to categorically reject protectionism and reassess the Doha round of trade talks that broke down last year.

UK prime minister Gordon Brown's recent whirlwind tour of the globe to garner support for a G20 deal included a visit to Brazil's Luiz Inacio Lula de Silva, whose support is seen as crucial to restarting the talks. However the lack of staff in the US trade representative's office means such an announcement this week is unlikely.

Added to this, recent discussions on whether the US dollar should continue to be the world's reserve currency may see the topic creep onto the G20 agenda.

Last week China called for the dollar to be replaced by an IMF accounting unit known as "special drawing rights" and a UN advisory committee headed by US economist Joseph Stiglitz backed the call.

The difficulty in reaching a final decision with so many topics on the agenda is compounded by Europe's frequent inability to speak with one voice.

The EU member states attending the meeting are Germany, the UK, France and Italy, with the Netherlands and Spain also gaining an invitation to the event.

Mr Barroso will represent the European Commission at the meeting with Mirek Topolanek likely to represent the Czech EU presidency despite his resignation last week.

Germany's Angela Merkel said over the weekend that leaders were unlikely to reach a final deal on financial regulation.

"We will naturally not solve the economic crisis either, and we won't solve the issue of trade. We will definitely need to meet again," she added.

Protests

This more incremental nature to Thursday's meeting means huge protests planned for London could easily steal the limelight from world leaders.

Major environmental and anti-capitalist groups will be joined by a multitude of smaller organisations on Thursday with one anarchist group encouraging its supporters to "capture and burn a banker."

The policing bill for the event alone is expected to reach €7.5 million and failure by world leaders to reach a decision raises the prospect of a stock market fall on Friday.

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