The G-20 summit will not mark a turning point in the path of this crisis; but it provides the strongest reason yet to be less pessimistic about the future. The 29-point communiqu? sets out a clear path for a sustainable recovery and lays down sensible principles to guide the recovery and its aftermath. Gordon Brown and his fellow leaders deserve praise. Of course, the devil is in the details. But better he is there than he is stirring up trouble at the ports, promoting protectionism and beggar thy neighbour policies.
One of the striking things about this communiqu? is that it is a considered document. Crises seldom breed balanced responses. In the areas of financial regulation and trade the leaders could all too easily have been seduced by base appeals to 20-odd electorates. There are broadly five areas in which the communique sets out a balanced framework to guide national policy makers.
First, although these are the 20 or so largest economies in the world, and the pre-meeting tussle has been about stimulus packages and financial regulation in the US and Europe, at the centre of the document is concern for the world?s poorest. This concern is reflected not just in warm words and the ritual reaffirmation of the Millennium Development Goals, but a proposal to treble the resources of the IMF from $250bn to $750bn, increase liquidity of IMF members through a $250bn SDR issue and moderate conditionality for emergency funding with new facilities such as the Flexible Credit Line. Mr Brown has pulled some large rabbits from his hat. The man is wasted on the parochial matters of running a single nation state.
The communiqu? has the usual talk of improving the voice of the poor and surveillance of the rich. Included is a repetition of the commitment that the leadership of international institutions will no longer be the product of horse-trading between nineteenth century powers. We are still waiting for Godot at the IMF and World Bank, but the newly reformed Financial Stability Board looks more representative.
The great depression of the 1930s became ?great? because nation states turned inward. This document?s strong commitment against protectionism and competitive currency devaluations gives hope that we will not repeat that mistake. The leaders have made this commitment before?they promised to secure the Doha trade round by the end of last year?and then many engaged in seemingly opposite initiatives. But there is a new commitment to go the additional step of enforcing surveillance and implementation of WTO rules and an explicit recognition that spending packages are manipulating trade. We should be grateful that the G-20 starting point is that protectionism is a problem, not a salvation.
The German and French leaders have been arguing that the London declaration should herald tough new international regulations. The public mood is one where we could easily go from poor but light regulation, to poor but heavy regulation. This document rightly places macro-prudential regulation and counter-cyclical interventions at the centre of its new regulatory framework. It also raises important issues of value accounting. These are the kinds of initiatives?all echoed in the Geneva Report and Turner Review?that will really make a difference. The communique does make populist nods to the regulation of hedge funds, but it sensibly balances that by focusing on systemically important institutions whatever they may be called or wherever they may be. Even the issue of off-shore financial centres is properly in the box of tax secrecy issues, a problem oddly monopolised by small European principalities.
According to the communiqu?, international trade and development commitments and national spending commitments so far, tally up to over $5trn. These numbers may be exaggerated for effect, but when the fiscal initiatives are coupled with the extraordinary and unconventional easing of monetary policy, there is no doubt that the world has been given an unprecedented injection, that, if well-targeted, should moderate the impact of the crisis on jobs and poverty. However, the document also recognises that there are inflationary and debt implications and there is a need for governments to have clear plans to exit nationalised banks, revive private-sector driven credit formation and restore fiscal balances.
When it comes to implementing this blueprint, inconsistencies will surface. Despite all the grand international talk, greater macro-prudential regulation such as counter-cyclical capital charges and liquidity buffers at banks, are best done nationally not internationally. Some powerful countries will use global rule-making as a form of protectionism. Doing whatever it takes to restore growth in the US necessarily conflicts with inflation containment and fiscal consolidation. Encouraging Asians to put up more money for the IMF and giving more voice to the poorest countries can only be achieved by a dramatic reduction in European voting power at the IMF. There is plenty for the devil to make mischief with; but it is hard to think what more the G-20 could have done.
The author is chairman of London-based Intelligence Capital, governor of the London School of Economics and Emeritus Professor of Gresham College in the UK