Blog Post

An agenda for the London Summit

In this column, Nicolas Véron looks at what the London Summit of the G20 on 2 April can and cannot achieve. He argues that the G20 should concentrate on governance issues, the area where it is best equipped to add real value. Given the circumstances, reform of the International Monetary Fund should come on top […]

By: Date: March 10, 2009 Topic: Global economy and trade

In this column, Nicolas Véron looks at what the London Summit of the G20 on 2 April can and cannot achieve. He argues that the G20 should concentrate on governance issues, the area where it is best equipped to add real value. Given the circumstances, reform of the International Monetary Fund should come on top of on its agenda.

The London Summit on 2 April will be the second held at heads-of-state-and-government level by the G20. This debating forum carries significant legitimacy as it represents twothirds of the world’s population and nine-tenths of its economic activity.
The previous session on 15 November in Washington DC was just a warm-up. The G20 countries must now face up to a wholly different crisis. Woe has spread far beyond the financial sector.
It presently involves a serious recession, a collapse in global trade, a sharp rise in unemployment, and the macroeconomic destabilisation of several countries, some of whom are members of the European Union.
Moreover, it will be Barack Obama’s first big international meeting. Ineluctably, markets will be hanging on the results of the discussion.
The G20 cannot afford to fail. But what sort of success can it hope for? The G20 has limited or no traction on several of the major questions of the day.
Fiscal policy cannot be coordinated in such a large and disparate group. The same applies to exchange-rate policy, which would require a smaller and more focused forum. Bank rescue operations remain a national business, or at most a regional one in the case of the EU.

On these pressing matters the G20 can do little more than urging and encouraging. Rhetoric can help, including a renewed call not to fall into the trap of protectionism. But it brings you only so far. The London summit should therefore focus on longer-term issues, such as institutional architecture and governance.
In spite of the urgency of the moment, these are crucial. The crisis will be lengthy, and the ship must be repaired as it weathers the storm.
The G20 must push to restructure the current system of global institutions, to make it relevant again in a world which has become more multipolar.
The first of these challenges is IMF reform. It is also a short-term imperative, because the Fund’s resources are insufficient to address the gathering hurricane.
For the major emerging countries to feel empowered in the Fund, the US should renounce its right of veto, and the Europeans should simultaneously give up their current overrepresentation.
If these gestures are announced on 2 April, China and others could quickly boost the Fund’s resources. Such an increase will be vital for the IMF to be strong enough to intervene anywhere it needs to, including in Europe.
The G20 should also accelerate the reform of other institutions. The Financial Stability Forum, but also the Basel committee on banking supervision, both crucial to debates about pro-cyclical prudential policies, should open themselves to China in order to buttress their standing in a world where three of the five biggest banks globally by market value are headquartered in Beijing.
On accounting, the G20 should endorse the reform of IFRS governance announced in January, in spite of all its flaws. It should also direct its attention, more than has been the case until now, on the inconsistencies in implementation of the international standards.
Moreover, the G20 should launch a medium-term debate on the supervision of globally integrated financial players, such as rating agencies, the main audit networks and the big investment banks.
Such a focus on governance issues would be better suited to the political nature of the G20 than the details of financial regulation, which formed the bulk of the November summit declaration.
Finally, the G20 could usefully advance on tax havens, a matter of fairness and a precondition for wide-ranging tax increases, including on the better-off, which will likely be needed at some point in many countries.
Would such an agenda satisfy the marketplace? Probably, because markets want to see concrete steps forwards, even modest ones, rather than rhetorical flights about saving the world or remaking capitalism.
Markets are resigned to a life dependent on politicians but do not hold these in high esteem. This is why the G20 must be modest enough to target its action where it can add real value. If it manages to do so, it will emerge as a durable forum for coordination of global economic and financial institutions, whose number and role may grow considerably with the crisis.
If not, the G20 may soon be but a vague memory of a fleeting phase in the collapse of globalisation.

Nicolas Véron is a research fellow at Bruegel.
Andrew Fielding’s help in translating from the French is gratefully acknowledged
.

This comment was originally published in French in La Tribune.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article
 

Opinion

COP26: why carbon pricing is crucial to China’s climate change pledges

China’s emissions trading scheme is a welcome but to reach its full potential, it needs to cover more of China’s emissions, go beyond the electricity sector and let prices reflect the true cost of carbon.

By: Alicia García-Herrero and Junyu Tan Topic: Global economy and trade, Green economy Date: October 22, 2021
Read article More by this author
 

External Publication

Global Economic Resilience: Building Forward Better

A roadmap for systemic economic reform calling for step-change in global economic governance to increase resilience and build forward better from economic shocks, prepared for the G7 Advisory Panel on Economic Resilience.

By: Thomas Wieser Topic: Global economy and trade, Macroeconomic policy Date: October 14, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

Will ‘common prosperity’ address China’s inequality?

Why is China reviving this old mantra?

By: The Sound of Economics Topic: Global economy and trade Date: October 13, 2021
Read article More by this author
 

Opinion

European governance

The inconsistency in global strategic relations

All of this talk on strategic retrenchment and autonomy is the language of escalation, not of appeasement and collaboration.

By: Maria Demertzis Topic: European governance, Global economy and trade Date: October 13, 2021
Read article
 

Opinion

Xi’s pledge on financing coal plants overseas misses point

China’s domestic installation of coal-fired power plants continues at great pace.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Global economy and trade, Green economy Date: October 7, 2021
Read article More by this author
 

Blog Post

European governance

Pandemic prevention: avoiding another cycle of ‘panic and neglect’

Agreement is needed at international level on mechanisms to ensure better preparedness for the next pandemic.

By: Anne Bucher Topic: European governance, Global economy and trade Date: October 7, 2021
Read article
 

Opinion

Will China use climate change as a bargaining chip?

Beijing shows signs of changing tactics ahead of the COP26 conference.

By: Alicia García-Herrero and Simone Tagliapietra Topic: Global economy and trade, Green economy Date: October 6, 2021
Read article More on this topic More by this author
 

External Publication

A world recovery fund to overcome developing countries’ post-covid debt woes?

Proposal to set up a World Recovery Fund (WRF), aimed at addressing some of the key problems with the design of the DSSI and more generally the existing international financial architecture for dealing with debt problems in the developing world.

By: Alicia García-Herrero Topic: Global economy and trade Date: October 6, 2021
Read article More on this topic More by this author
 

Opinion

The geopolitical conquest of economics

Although economics and geopolitics have never been completely separate domains, international economic relations were shaped for 70 years by their own rules. But the rise of China and its growing rivalry with the United States have brought this era to an end.

By: Jean Pisani-Ferry Topic: Global economy and trade Date: October 4, 2021
Read article More on this topic More by this author
 

Opinion

What Evergrande signals about China's economic future

Under Xi Jinping's new economic agenda 'common prosperity', China is cracking down on indebted real estate developers like Evergrande.

By: Alicia García-Herrero Topic: Global economy and trade Date: September 30, 2021
Read article More on this topic
 

Blog Post

German elections: seizing the moral and economic opportunity of global health security

The new German government should play its part in global health security and preparedness.

By: Amanda Glassman and Guntram B. Wolff Topic: Global economy and trade Date: September 24, 2021
Read article More on this topic More by this author
 

Opinion

Europe doesn’t need a ‘Mega-Fab’

Europe should defend its existing dominance in equipment manufacturing for semiconductors and invest in chip design instead of luring high-end fabrication to its shores.

By: Niclas Poitiers Topic: Global economy and trade Date: September 22, 2021
Load more posts