Focus: The G20 London Summit 2009
From Al Jazeera English Online
2 April 2009
Leaders of the world’s 20 richest nations have gathered in London, the British capital, for a summit likely to be dominated by discussion of how to address the world’s deepest recession in 80 years.
They are tasked with improving confidence in a financial system that has widely been criticised by governments, analysts and the public alike.
Al Jazeera spoke to analysts about what the main players in the summit are looking for, and how they can reach their respective aims.
Samah El-Shahat, Al Jazeera’s economic and financial analyst
There will be a final communique which will say that the world will provide greater fiscal stimulus. But the devil will be in the detail; the question is over the size of the stimulus and the need for co-ordination.
The size of the stimulus is fundamental because if we do not have the right amount of money thrown at the economies to get people to start spending money, then this recession may end up being a global depression.
This is the first time that we as a people matter more than the markets because for a fiscal stimulus to succeed it has to convince us that tomorrow will be a better day. It has to convince us to go out shopping and buying.
I think the huge fear at the G20 is of protectionism. The US and China have the biggest fiscal stimulus packages. If their people – their taxpayers – feel that they are the ones literally saving the world because they are the ones buying, it would be normal for them to say “enough of this, we will only buy American or Chinese products”.
If we look back at the Great Depression, which is the closest time in history to the situation that we are in now, what made that depression so deep and so awful was protectionism.
China, right now, is the US’s true best friend because it holds so much reserves in the US dollar. Beijing wants to see the US do well. The question then becomes: What does China want out of the International Monetary Fund (IMF)?
China has put $100bn into the IMF, which the US was hoping it would do. If you speak to Chinese officials, off the record, they will say that they remember pretty well what the IMF did during the Asia crisis [of the 1990s]; that it destroyed the economies of Asia in that period. China does not agree with the conditions that the IMF imposes.
What China could say to the IMF is “OK, you want our money, so change our voting rights [in the IMF]”. China, the next superpower, has only 3.9 per cent of the vote in the IMF, while America has the veto vote and Europe has 36 per cent of the vote. The IMF is very much a reflection of the old world order of the last 60 years.
Andrew Cooper, Centre for International Governance Innovation (CIGI), a non-profit think tank covering economic and governance issues
It is a global crisis and we need a global solution. What the G20 is doing is [showing] that the old recipes for reform are not viable any more. It is opening up to the world; how effectively it is opening up to the world is another question.
I think it is interesting that some of the older issues are very much at the forefront, [such as] liberalism and regulation. The real tension is between what France calls the Anglo-Saxon world in terms of the neoliberal approach versus the much more staged and regulated approach of the European continent.
The G20 is aiming for a new future for the world financial system amid popular dissent [AFP]
Another debate is over the rising power of China. It has a great deal of interest in stimulus packages. In some way, there is more room for co-operation between US President [Barack] Obama and President Hu Jintao of China than there are between [German Chancellor] Angela Merkel and [French President Nicolas] Sarkozy. I think we are seeing a sea change in this regard. Obama has some new partners.
The Chinese are, of course, going to ask for compensation; they are going to put some pressure on the United States, the dollar, and other forms of activity.
In return, the Chinese are going to help that stimulus package bring in consumers, getting people back into stores and buying. In this regard the Chinese and Americans have much more in common than the Europeans, which want regulation. They want order and for manufacturing to do well, but they don’t want inflation and they don’t want a rush on currencies.
I think in the United States we may have reached the bottom. There is an awful lot of resilience in the US economy. In the house market, houses may not be selling for the same amount as they were two years ago, but they are selling. People are seeing market opportunities.
This is the difference with Germany and France, where people rent and don’t move from city to city. In the US there is this ability to move and the sense that people can reinvent themselves within the economy.
Because of that, I think that, ironically, the United States may come out of the recession faster than European countries.
Bob Geldof, political campaigner for Africa
I think helping the poor is the essence of the issue. We built a global financial architecture that was asymmetric – it excluded 50 per cent of the world that live on less than two dollars a day. It excluded 50 per cent of the world’s productive and intellectual capacity.
The global economy could benefit by expanding further into Africa, Geldof says [AFP]
That means that whatever system you have built is unstable, top heavy. It will fall over. Unless you bring those marginalised and peripheral countries and people into the centre of the system, you are going to build the same asymmetry again.
I think Britain, America, Japan and Germany have lived up to the promises they made at the G8 in Gleneagles four years ago. Italy, president of the G8 this year, shamefully has actually gone back. In general, the G8 are doing what they said.
But the point is that those arguments are of another age. Words like “fiscal stimulus” are just another word for aid, except it is to ourselves. “Toxic assets” is another word for debt. They have cancelled the toxic assets.
What we require now is a $50bn fiscal stimulus for Africa; you can call it aid, but it would immediately result in $2bn in extra trade for Germany, $1.8bn for the US and China, and $750m in trade for Britain. That’s the point – we should not revert to protectionism, which is self-defeating, we should move towards expansionism. There is one economy in the world and we must include all the productive capacity of that economy.
There are lots of ways of paying for $50bn, when you consider that the UK put 75 billion pounds into one domestic bank. What we are saying to the world – not just me but the National Institute of Research and Economic Science – is that $50bn from the entire world can be used on aid commitments, IMF gold sales, and so on.
The first and foremost duty of any government is towards its own people, but if you want to take care of your own people you must grow your economy. The way of growing your economy is by growing your markets in areas that are unused. Think of Africa as 900 million producers and consumers – not as people who are recipients of aid.
Mark Malloch Brown, British special representative to the G20
It is not quite as dramatic as you might expect, given the lead in of the drama of leaders arriving with apparently very different positions.
We are now … getting close to an agreed text where the leaders, who did draw some sharp red lines in the run up to this, all feel that they are close to being able to go home and declare victory on the issues they care about.
What the markets are going to be looking at is strong and for them difficult language to accept, but very important language on financial regulation.
A big number on IMF and other resources to go into the middle income and developing who so far have not in general had the same possibilities of stimulus and liquidity or counter-cyclical investment that we’ve had in our countries.
I think that you are going to see strong language on trade with some real commitments in the form of monitoring of compliance with trade commitments by the World Trade Organisation (WTO) to this time make sure that there is not further backtracking.
Then as you look at the particular features of where the economic crisis is today, measures which will really target very problematic things.
Of which, perhaps the most obviously is the collapse of international trade, not just because of the collapse of demand in the global economy or because of the beginnings of protectionism, but because the collapse of international banking has meant that trade finance – the letters of credit which make trade work – have gone missing. And so some very targeted measures to get that going again.
So I think that the markets will look at this as a pretty, practical pragmatic set of measures that hold together well, coherently, as a sensible attack on this phase of the crisis.
The remaking of the international financial institutions is definitely going to happen and it is going to be clearly signaled and committed to today. But it took some years to design the Bretton Woods institutions, so you’re not going to get some of these things happening overnight.
But this is a new dawn in the sense that this will represent a much higher degree of economic coordination, a much higher degree of shared global ambition for how we govern our mutual economic affairs together going forward.
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