G20: What’s the deal?
London’s diplomats have called on world leaders meeting at the G20 summit today to prioritise a tighter global financial regulatory system, according to a survey conducted by Embassy magazine.
As world leaders gather around the conference table to decide how to fix the world economy, London’s diplomats sent a clear message to focus on building an international regulatory architecture.
More than half the respondents (52%) said tighter financial regulation was the most urgent issue to address at the summit, above a synchronised fiscal stimulus and anti-protectionist measures (both of which were evenly split at 21%) and reform of the IMF (which attracted 9% of the votes).
Echoing calls from German Chancellor Angela Merkel and French President Nicolas Sarkozy, envoys from all regions Europe, Africa, Asia-Pacific and the Americas and Caribbean have urged the leaders of the world’s most powerful industrialised and developing economies to agree on a raft of tough measures, which include greater transparency in banking practices, clamping down on hedge funds and tax havens, an early warning system for future financial crises, stronger banking supervision (such as more robust capital adequacy rules) and reforms to bonus systems that encourage reckless risk taking.
Fiscal stimulus divides corps
The issue of increasing government spending divided opinion with as many diplomats saying it was the top priority as those saying it was the lowest priority. While some diplomats raised concerns that an overbearing regulatory system would choke any recovery brought about by a fiscal stimulus, respondents worried that tax cuts and fiscal expansion would be unaffordable. “A fiscal stimulus will only be effective if it is calibrated correctly,” commented one Asian diplomat.
Diplomats from all regions but notably the developing nations of Africa, Asia and Latin America added that kickstarting the world economy through trade finance and anti-protectionist measures was more important than expansionary fiscal policy with more envoys ranking this measure as a top or second priority than those calling for a fiscal stimulus.
However, many diplomats pointed out that boosting international trade and fiscal stimulus were two sides of the same coin, with expansionary fiscal policies helping to boost the consumer demand which fuels world trade especially with the developing world which has seen its exports plummet.
“All four priorities are important,” said one American diplomat, “but if I have to pick one as the most urgent, it would have to be boosting global demand through a fiscal stimulus.”
Some diplomats, notably from small developing nations who have been hard hit by the world recession, recommended that loose fiscal policies should be tackled with as much urgency as stricter supervision.
Calls for IMF reform including bolstering IMF resources to bail out failing economies and a re-weighting of voting rights in favour of the developing world were loudest from Asia-Pacific diplomats, where China is considering a $50bn injection in exchange for more voting rights. Nevertheless, IMF reform registered as the least important of the four issues on the table.
So will there be a deal? Diplomats have set the scene and all they can do now is watch and wait. To find out what the G20 leaders ‘in the docklands’ consider most important, turn to page 2.