The November 15, 2008, meeting between the leaders of the Group of 20 (G20), which is an informal group of finance ministers and central bank governors of 19 countries and the European Union, is widely viewed as the event that will bring about the end of the global recession. However, that is a dangerous and wrong assumption – one that could trigger a broad market sell-off next week and beyond. This weekend’s G20 leaders meeting is a beginning. It is a dialogue between the countries that may be able to resolve the economic crisis. However, the dialogue is meant to see where the G20 countries have common ground and under what conditions they might agree to coordinate an economic rescue effort.
“People are wondering if their expectations for the G20 are met or exceeded,” said Fumiyuki Nakanishi, chief equity strategist at SMBC Friend Securities in Tokyo. “But there is so much uncertainty at this point.”
To get a sense of what the G-20 expect out of this meeting, one need only look to the communique issued by the G-20 out of its regularly-scheduled meeting last weekend. “We welcomed that the Heads of G-20 countries will convene for a Leaders’ Summit on Financial Markets and the World Economy to be held on 15 November 2008 in Washington, noting that the global crisis requires global solutions and a common set of principles and that the forthcoming summit is an important step in enhancing international cooperation.” Note, the meeting is “an important step,” rather than a final battle plan for tackling the credit crisis.
One should also note that the G20′s focus is not entirely on ending the current crisis, but also on how to regulate the global financial industry:
“Furthermore, the G20 proceedings argue for the need to improve the supervision and governance of financial institutions, at both national and international levels. In this regard, the G20 argues that we should consider ways of enhancing the identification of systemically important institutions and ensure proper oversight of these institutions, including credit rating agencies. Also, it is important to address the issue of pro-cyclicality in financial market regulations and supervisory systems. Another related issue is the one on the role financial institutions and the fact that they should have common accounting standards and clear internal incentives to promote stability and that action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking. Regulators and supervisors should enhance their vigilance and cooperation with respect to cross-border flows.”
(SOURCE: The G20 Role in the Current Financial Crisis, Vitoria Saddi, Global Macro Economonitor)
The world financial system has long been dominated by U.S. and European influence. The current crisis may be viewed by some countries as an opportunity to diminish that influence and exert their own. For that reason, I do not have great expectations for international cooperation on the economic crisis unless some extraordinary bargaining is done.
There is an excellent article chronicling a collection of essays written by prominent authorities about what the G20 should accomplish this weekend by Barry Eichengreen and Richard Baldwin at VoxEU.org.
Gregg D. Killoren
victoria1014
