G20

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The G-20 (more formally, the Group of Twenty Finance Ministers and Central Bank Governors) is a group of finance ministers and central bank governors from 20 economies: 19 of the world's largest national economies, plus the European Union (EU).

It also met twice at heads-of-government level, in November 2008 and again in April 2009.

Collectively, the G-20 economies comprise 85% of global gross national product, 80% of world trade (including EU intra-trade) and two-thirds of the world population.

The G-20 is a forum for cooperation and consultation on matters pertaining to the international financial system. It studies, reviews, and promotes discussion among key industrial and emerging market countries of policy issues pertaining to the promotion of international financial stability, and seeks to address issues that go beyond the responsibilities of any one organization.

Contents

G-20 to become world’s main economic body

"World leaders announced the Group of 20 nations is replacing the G-8 as the main forum for global economic coordination, reflecting a shift in power from rich countries to emerging markets.

The decision, unveiled in a White House statement late yesterday, comes as President Barack Obama, Chinese President Hu Jintao and other leaders gather in Pittsburgh for their third summit in a year to reshape the governance of the world economy following the worst financial crisis since the Great Depression. The G-8 will still exist and focus on matters such as development and security matters, Prime Minister Stephen Harper told reporters today. Canada hosts the G-8 next year.

The transfer of influence to the broader group, whose membership ranges from the U.S. to China to Saudi Arabia, symbolizes the fact that the richest industrial nations now lack the sway to govern the world economy alone after their excesses sparked the turmoil that tipped the globe into recession.

“The G-20 needs to prove it can make the tough calls and implement agreed outcomes in a timely fashion,” said Tim Adams, who served as the U.S. Treasury’s top international official under former Secretaries John Snow and Henry M. Paulson, and is now managing director of the Lindsey Group. “I think it will succeed, but the G-20 must prove skeptics wrong, and that will take time and effort.”

G20 to create “Global Financial Safety Net”

"... We have seen with the recent financial crisis the potentially devastating impact of sudden reversals of international capital flows on emerging and developing economies.

At the G20 Summit in November, we will place on the agenda the establishment of what we call a “Global Financial Safety Net” that can put in place a multilateral mechanism for addressing such sudden reversals.

The new arrangement seeks to develop the successful implementation of bilateral arrangements between central banks for dealing with sudden reversals of capital flows. We believe that the establishment of such a financial safety net will contribute significantly toward balanced growth of the global economy.

Washington April Communiqué

"...

4. Recognizing the increasingly integrated nature of the financial regulatory reform issues, we reaffirmed our strong commitment to fully implement our reform agenda on the timelines agreed by Leaders in London and Pittsburgh. Good progress is being made and, to maintain the momentum, we:

  • reaffirmed our reform is multi-faceted but at its core must be stronger capital standards, complemented by clear incentives to mitigate excessive risk-taking practices. We recommitted to developing by end-2010 internationally agreed rules to improve both the quantity and quality of bank capital and to discourage excessive leverage. These rules will be phased in as financial conditions improve and economic recovery is assured, with the aim of implementation by end-2012. Implementation of these new rules should be complemented by strong supervision. We stressed the importance of the quantitative and macroeconomic impact studies underway and look forward to an update on their progress by the FSB for our June meeting.
  • agreed to closely review the progress of and provide guidance and strong support for the work of the FSB, BCBS and IMF. We support the work of the FSB to develop prudential standards, market infrastructures to contain the propagation of shocks and resolution tools and frameworks for systemically important financial institutions and look forward to a progress report for our meeting in June 2010. We look forward to receiving the IMF’s final report on the range of options that countries have adopted or are considering as to how the financial sector could make a fair and substantial contribution towards paying for any burdens associated with government interventions to repair the banking system. We call on the IMF for further work on options to ensure domestic financial institutions bear the burden of any extraordinary government interventions where they occur, address their excessive risk taking and help promote a level playing field, taking into consideration individual country’s circumstances. We welcomed the FSB, IMF and BCBS’s joint report on the inter-linkages between these issues and noted that, moving forward, we need to take into account the cumulative impact of the reforms on the financial system and the wider economy to move unequivocally in the direction of sound and stronger capital and liquidity framework ; and
  • stressed the importance of achieving a single set of high quality, global accounting standards; implementing international standards with regard to compensation practices and welcomed the FSB’s report; completing the development of standards for central clearing and trading on exchanges or electronic platforms of all standardized over-the-counter derivative contracts, where appropriate, and reporting to trade repositories of all over-the-counter derivative contracts; and consistent and coordinated oversight of hedge funds and credit rating agencies. We welcomed the progress by the Financial Action Task Force in the fight against money laundering and terrorist financing, particularly regarding the issue of a public statement on jurisdictions with strategic deficiencies last February. We also welcomed the report by the Global Forum on Tax Transparency and Exchange of Information, the launch of the peer review process, and the development of a multilateral mechanism for information exchange which will be open to all countries. We welcomed the launch of the evaluation process by the FSB on the adherence to prudential information exchange and cooperation standards in all jurisdictions.

G20 appendix on framework for sustainable growth

ST ANDREWS, Scotland (Reuters) - Following is the text of an appendix to the communique issued by finance ministers and central bank governors at their meeting in St. Andrews, Scotland.

A FRAMEWORK FOR STRONG, SUSTAINABLE AND BALANCED GROWTH:

DEVELOPING THE 'MUTUAL ASSESSMENT PROCESS'

Shared policy objectives

1. In line with the Pittsburgh commitment, G20 Finance Ministers and Central Bank Governors at their meeting in St Andrews, reaffirmed their shared objectives of strong, sustainable and balanced growth and of raising living standards in the emerging markets and developing countries.

2. The first challenge for the G20 in using the new Framework will be the transition from crisis response to a strong, more sustainable and balanced pattern of global growth.

The G20 template for 'national and regional policy frameworks' for 2010

3. Each G20 country will set out their medium-term policy frameworks, plans and projections in the agreed template on a consistent basis with other G20 members. G20 members will indicate the key forward-looking elements of their policy frameworks and plans, outline the expected first order impact of policies on the domestic economy and, more generally, their national forecasts for key economic variables.

4. They will provide the Fund with policy frameworks and plans for the next 3-5 years, if possible. Countries can submit data based on existing products, including for example national budgetary plans and Article IV inputs. Countries should fill in as much information as they can, though it is recognized that it may not be possible for all countries to fill in every piece of information in the template. G20 members should complete the template, sharing with all other G20 countries at the same time, by the end of January 2010, if possible.

5. In addition to national submissions, the process should include submissions from the relevant European institutions in line with their areas of competence.

The role of the IMF, World Bank and other international organizations

6. In line with the Pittsburgh agreement, the IMF will assist us by providing analysis (and technical support where appropriate)of how our respective national or regional frameworks fit together and the World Bank will advise us on progress in promoting development and poverty reduction as part of the rebalancing of global growth, taking into account the relevant institutional policy setups.

7. In carrying out its analysis for the mutual assessment, the Fund should also receive input from and draw on the expertise of other international organizations, as appropriate, for both assessing G20 policies and in analyzing the impact of policy options, including: the FSB on financial policies; the ILO on labor market policies; the WTO on trade policies; and the OECD and UNCTAD, where appropriate.

The process and timetable for 2010

By end-January, if possible: G20 countries set out their national policy frameworks and plans - sending their completed templates to the IMF and sharing with other G20 members.

By mid-February: G20 countries interact with the IMF to assure quality, elaborate and clarify any information supplied in the template, where necessary, during the following 2-week period; and, to identify inconsistencies and incoherence in national assumptions, particularly between forecasts and frameworks/plans.

Mid-February to April: IMF analysis to analyze the mutual compatibility of country frameworks and policies and calculate the aggregate impact of the frameworks and policies for global economic prospects. To ensure consistency, the Fund will apply common underlying assumptions to the country-specific information/data, which may result in adjustments to forecasts where necessary.

On the basis of this analysis and inputs from the World Bank and other international organizations, and consulting countries where appropriate, the Fund will produce an initial report containing a 3-5 year forward-looking assessment of global economic prospects, conditional upon national policy frameworks and plans ('the base case scenario'), and an initial indication of any policy issues and possible alternative policy scenarios that may be useful to explore.

April (Spring meetings): Deputies, Ministers and Governors consider initial Fund analysis, discuss any policy issues, including any risks caused by inconsistencies in the collective G20 policy mix or other risks, and consider and agree the different alternative policy scenarios that should be modeled by the Fund. (Other parts of national administrations will be involved where appropriate).

April-June: Fund produces policy scenarios - based on Finance Ministers' decisions taken in April, the Fund will provide more concrete analysis of how medium-term global prospects might be enhanced through collective policy actions to reach or get closer to the agreed shared objectives. The IMF will not focus on country-specific assessments or recommendations but will come forward with policy recommendations for groups of countries facing similar circumstances. The Fund's report will be modeled on the recent G20 Surveillance Notes, using simulations and discussions of alternative policy scenarios as ways to illustrate how enhanced policy coordination could help achieve better outcomes for everyone.

World Bank prepares analysis of the implications of collective G20 policies for development and poverty reduction - on the basis of national frameworks and plans and the Fund's base case scenario and alternative policy scenarios.

June: G20 mutual assessment and consideration of policy options - working on the basis of Fund analysis and inputs from the World Bank and other international organizations, the G20 will develop a basket of policy options designed to ensure that the G20 achieve their objectives, based on a range of policy scenarios. These policy options will relate to the full range of policy commitments made in Pittsburgh. G20 Deputies will prepare a report for discussion and agreement, firstly by Finance Ministers and Central Bank Governors at their preparatory meeting and then by Leaders at their Summit in June 2010. There are a number of possible publishing options - decisions on publication of the mutual assessment and policy scenarios will need to be taken nearer the time.

June to November: Refinement and updating of the mutual assessment process - with the assistance of the IMF, World Bank and other international organizations. The Fund will provide refined and updated analysis to the G20 by the end of August. If desirable, G20 countries can update their policy frameworks, plans and projections.

November: Refined mutual assessment and more specific policy recommendations for consideration and agreement by Finance Ministers and Central Bank Governors at their preparatory meeting, and by Leaders at their Summit in November 2010.

Fourth G20 Summit: Toronto 2010

Canada is proud to host the fourth G-20 summit on June 26-27 in Toronto. The Republic of Korea, G-20 Chair for 2010, will host the fifth summit in November in Seoul.

Established in 1999, following the Asian financial crisis in 1997, the G-20 convened annual meetings of finance ministers and central bank governors from Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union.

In 2008, G-20 leaders met for the first time in Washington to develop a coordinated response to the global economic crisis. The Washington Summit was followed by summits in London (April 2009) and in Pittsburgh (September 2009), where leaders designated the G-20 as the premier forum for international economic cooperation.

Over the course of the three summits, leaders crafted a coordinated global response to the crisis. They implemented stimulus measures to restore confidence and agreed on actions to strengthen financial regulation. Leaders also committed to reform international financial institutions and agreed to promote trade and resist protectionism. These interventions have been effective in mitigating the impact of the crisis, while encouraging a quicker transition to recovery than could otherwise have been expected.

The G-20 Toronto Summit will provide leaders with an important opportunity to follow through on commitments made at previous summits and to continue the work of building a healthier, stronger and more sustainable global economy.

Third G20 Summit: Korea 2010

2. Agenda and Priorities According to a joint statement by the leaders of Canada, Korea, the U.S., the UK and France, the G20 must work together to bolster the global financial system and put the economy on track for sustainable growth.

The past, present and future hosts of the G20 said G20 policy initiatives have helped lift the global economy out of its slump and avoided a total breakdown of the financial system, but they warned that the recovery remains fragile and called for redoubled cooperation. “It is vital that we, in a spirit of enlightened self-interest, continue to work together to achieve our mutual objectives in addressing new and emerging risks, safeguarding stability, and supporting a robust return to growth and job creation in all our economies,” the statement said.

It said the G20 must work to ensure that fiscal, monetary, foreign exchange, trade and structural policies “are collectively consistent with strong, sustainable and balanced growth.” Unless ongoing trade, fiscal and structural imbalances are addressed, “the risk of future crises and low growth will remain.” The statement called for continued resistance to trade protectionism and efforts to liberalize global trade and investment.

It also noted the need to improve the functioning of energy markets and phase out fossil fuel subsidies that distort markets and impede investment in clean energy sources. On the financial system, the statement said more work is needed to shore up some global banks’ balance sheets to reduce vulnerabilities and get credit flowing.

The statement called on the G20 to remain firmly committed to developing stronger international rules on capital and liquidity by the end of this year. They would be implemented as soon as financial conditions improve and economies recovers, with the aim of implementation by each country by the end of 2012.

All major financial centres must also have adopted the Basel II framework by 2011, it said. The statement also called for strengthening the infrastructure of key financial markets. Standardized over-the-counter derivatives contracts should be traded on exchanges or electronic platforms where appropriate, cleared through central clearing counterparties by 2012 at the latest, and reported to trade repositories.

The leaders called for a review of pay practices that encourage excessive risk taking and for full implementation of internationally agreed compensation standards set out by the FSB. The leaders also urged the G20 to create a framework to address crossborder resolutions of systemically important financial institutions.

The lack of such a framework made it difficult for authorities to move swiftly when the financial crisis intensified two years ago. “This should include establishing crisis management groups for major crossborder firms and resolution tools and frameworks that will reduce moral hazard. Prudential standards for systemically important institutions should be proportional with the costs of their failure,” the statement noted.

The leaders also highlighted the importance of accountability. “Achieving the ambitious peer review agenda that has been set for 2010 will be an important milestone,” they said.1 (March 30, 2010, Dow Jones International News)

Official documents, issued on November 12, 2010:

Third G20 Summit: Pittsburgh 2009

Media coverage

G20 finance ministers' meeting Sept 09

"After two days of meetings in London, the Group of 20 finance ministers and central bankers agreed the broad outlines of a tough new regulatory framework for financial institutions that stops short of setting caps on bankers’ bonuses but leaves open the possibility that regulators will have a say on pay.

In broad terms, the group agreed three major points about banking regulation: banks must raise much more capital once the financial crisis has passed, complex financial institutions should develop “living wills” to plan for their unwinding should that ever become necessary and banks should be required to retain some portion of loans they repackage and sell as asset-backed securities.

The group also made an implicit plea for banks to limit payouts to shareholders, saying: “We call on banks to retain a greater proportion of current profits to build capital, where needed, to support lending.”

The group also agreed that it is far too soon to begin unwinding the unprecedented amounts of fiscal, monetary and financial sector support which have been poured into the economies of member states, with US Treasury Secretary Tim Geithner saying that unemployment remains “unacceptably high”. The US unemployment rate reached 9.5 per cent last month according to figures released on Friday."

  • Source: G20 finance ministers' statement BBC, September 5, 2009 (This is the full statement issued after the meeting of G20 finance ministers and central bank governors in London.)

G-20 replaces the G-7

"Group of Seven finance officials meet this weekend in Istanbul debating whether to surrender the weapon that helped shape currency markets for three decades.

One week after the Group of 20 anointed itself the world economy’s main policy forum, G-7 finance ministers and central bankers may break with tradition and choose not to release a statement on the global economy and currencies, said officials who declined to be identified. That would deprive traders of the commentary that policy makers frequently use to influence exchange rates.

The debate over the G-7 role comes as European Central Bank President Jean-Claude Trichet, U.S. Treasury Secretary Timothy Geithner and French Finance Minister Christine Lagarde head to Turkey endorsing a “strong dollar.” The diversity of the G-20, which includes China and India, means investors may have to deal with conflicting signals as its members seek common ground.

“There may be communication difficulties as policy makers misspeak and inject volatility into markets,” said Stephen Jen, a managing director at BlueGold Capital Management LLP in London. “It will take a few rounds of G-7 and G-20 meetings to form a collective opinion on currencies.”

FSB to link pay to capital, refrain from caps

"The Financial Stability Board is expected to unveil Friday a series of guidelines aimed at linking bank pay to a bank’s capital and liquidity position, but will stop short of imposing caps on bonuses, people familiar with the matter said. Under the FSB rules, which will be presented to a gathering of the world’s 20 leading economies in Pittsburgh, national banking supervisors should play a central role in assessing banks’ compensation plans, with a view to helping them preserve a strong capital base and a sound liquidity position.

This in turn should safeguard the overall stability of the global financial system, by curbing excessive pay packages that encouraged excessive risk taking many believe to be at the heart of the financial crisis, these people said.

These recommendations come as banks will face tougher capital requirements within the next two to three years under rules currently being devised by the Bank for International Settlements, an international group of banking regulators.

Although the FSB isn’t expected to spell out a list of sanctions for non-compliant banks, it should leave sanctions to the discretion of national banking supervisors.

At a meeting in London earlier this month, G-20 finance ministers failed to agree to impose a cap on bonuses, and instead asked the FSB to address the thorny issue by coming up with a list of global standards on banks’ remuneration.

The issue is contentious between the Europeans, who are pushing for a limit to bonuses as a proportion of a bank’s revenue or profits, and the U.S., which argues the best way to prevent future financial crises is to bolster banks’ capital cushions.

The FSB recommendations should provide a middle ground between the two stances, by telling banks to better align remuneration with firms’ long-term performance rather than short-term gain, but refraining from advising absolute pay caps.

IASB/IASC reports to the G20

"The purpose of this letter is to inform the leaders of G20 countries of the progress that the IASC Foundation and the IASB have made in response to the G20’s recommendations on accounting standards agreed at the Leaders Summits in Washington in November 2008 and in London in April 2009.

In preparation for the upcoming Pittsburgh Leaders Summit, the G20 finance ministers recently called for:

Convergence towards a single set of high-quality, global, independent accounting standards on *financial instruments,

  • loan-loss provisioning,
  • off-balance sheet exposures and
  • the impairment and valuation of financial assets.

Within the framework of the independent accounting standard setting process, the IASB is encouraged to take account of the Basel Committee guiding principles on IAS 39 and the report of the Financial Crisis Advisory Group; and its constitutional review should improve the involvement of stakeholders, including prudential regulators and the emerging markets.

The IASC Foundation and the IASB support these objectives and are committed to achieving them.

The attached progress report (Appendix A) describes the substantial progress already made.

The IASB, which is responsible for IFRS used in over 100 countries and growing, is working with the US Financial Accounting Standards Board (FASB) to reach convergence between IFRSs and US generally accepted accounting principles (GAAP).

This would help achieve the goal of one global standard.

The Trustees support the IASB’s deepening of its engagement with its stakeholders and its taking account of the Basel Committee guiding principles and the report of the Financial Crisis Advisory Group (FCAG).

We are pleased that, while recognising the IASB’s commitment to investors as the primary users of financial information, the IASB, amongst other actions, has already established an enhanced technical dialogue with prudential supervisors, market regulators and other stakeholders. This dialogue will ensure their deeper input in the development of new standards.

The first meeting of this enhanced technical dialogue occurred on 27 August in London. The IASB is also meeting regularly with the Basel Committee and is a member of the Financial Stability Board, where financial reporting issues are regularly discussed.

At our July meeting, the Trustees stressed the urgency in completing the first component of the comprehensive revision of IAS 39, the IASB’s financial instrument standard, by year end. The work underway is consistent with the elements identified by the G20 finance ministers at their pre-Pittsburgh meeting.

The proposals to revise IAS 39 on which the IASB is now consulting globally provide a significant reduction in the complexity of financial instrument accounting—a goal highlighted at the April 2009 G20 Leaders Summit in London.

The proposals are also consistent with the view of many stakeholders, including the Basel Committee, that cost-based accounting is appropriate for some categories of financial instruments.

In making their proposals and in order to provide transparency and reflect economic reality, the IASB’s emphasis has been to define in a balanced and transparent way the appropriate criteria for classifying instruments to be measured at cost and fair value—not to increase or decrease arbitrarily the use of fair value. Whether there is a decrease or an increase of fair value will depend on a particular institution’s business model and holdings.

The IASB is not proposing that the loan book of banks will be held at fair value.

Complementing the review of fair value accounting for financial instruments, the IASB is improving the accounting for loan-loss provisions, another area cited by the G20.

The IASB is working closely with prudential supervisors, financial institutions, investors, and other stakeholders specifically to develop more forward-looking measures (an expected loss model rather than the incurred loss model currently in place in IFRS and US GAAP).

The IASB has already issued a discussion document on provisions and will release a final proposal in the fourth quarter.

Finally, regarding governance issues, the changes proposed in the first part of the five-yearly Constitution Review are already in place. They include, importantly, the creation of a public accountability link to a Monitoring Board comprising public capital market authorities.

On 9 September 2009, the Trustees published their proposals for the second part of the Constitution Review. These proposals seek to enhance further the governance and public accountability of the organisation.

They also propose to improve the involvement of stakeholders with a broad range of perspectives in both developed and emerging markets. In addition to the formal written comment process on these proposals, the Trustees are now consulting stakeholders throughout the world through a series of public round table meetings in London, New York, and Tokyo.


A comprehensive overview of measures undertaken by the IASC Foundation and the IASB in response to the conclusions reached by the G20 at their summit in London, UK on 2 April 2009. The overview was last updated in August 2009.

Financial Crisis Advisory Group report to the G-20

"The Financial Crisis Advisory Group (FCAG), a high level group of recognised leaders with broad experience in international financial markets, today published its recommendations related to accounting standard-setting activities, and other changes to the international regulatory environment following the global financial crisis.

The FCAG was formed at the request of the International Accounting Standards Board and the US Financial Accounting Standards Board to consider financial reporting issues arising from the crisis. Co-chaired by Hans Hoogervorst, Chairman, AFM (the Netherlands Authority for the Financial Markets) and Harvey Goldschmid, former Commissioner, US Securities and Exchange Commission, the FCAG met six times from January to July 2009.

The report of the FCAG articulates four main principles and contains a series of recommendations to improve the functioning and effectiveness of global standard-setting.

The chief areas addressed in the report are:

  1. Effective financial reporting
  2. Limitations of financial reporting
  3. Convergence of accounting standards
  4. Standard setter independence and accountability

G-20 is urged to raise bank reserves

"World leaders at the Group of 20 meeting this week should force banks to build up their reserves substantially to avoid another acute financial crisis, a leading association of regulatory experts said Monday.

Lurking behind the appeal from the European Shadow Financial Regulatory Committee, a panel of academics and former regulators, is a fear that the political momentum for deep-seated reform may be waning as the financial crisis ebbs. Although a recent meeting of G-20 finance ministers in London discussed ideas for increasing the reserves that banks must hold against losses, there was little sense of urgency. Treasury Secretary Timothy F. Geithner said he wanted to see a final agreement by the end of next year.

Harald Benink, a professor of banking and finance at Tilburg University in the Netherlands and a member of the shadow committee, said the global effort to revamp banking regulation had slowed badly as officials became bogged down in debates over executive pay. But only higher reserves will avoid future crises, he said.

“There is no point in doing anything but talking about how much capital banks need to have on hand,” Mr. Benink said.

The group called on officials who will attend the G-20 meeting, in Pittsburgh, to create rules that would “raise the average bank capital requirement substantially.”

The group also criticized plans by the G-20 to introduce what are known as counter-cyclical capital buffers, or rules that require banks to put away more reserves in good times and draw them down in bad times. In theory, such rules would have forced banks to reserve capital during the decade-long global housing boom that ended so badly.

But in reality, neither financial markets nor regulators were able to predict the housing bust and are unlikely to foresee future bubbles, the shadow committee said.

“Bubbles are easily identifiable ex post but rarely recognized beforehand when it would be desirable to build up the capital base,” the group wrote.

The committee also called on the G-20 to find a solution to the “too big to fail” problem in which governments have bailed out large banks that posed a threat to the financial system as a whole. Some officials have suggested a “resolution regime” that would permit regulators to unwind and dissolve major banks.

The shadow committee suggested that regulators could instead require banks that are too big to fail to hold even more capital in reserve, a step that would presumably reduce the likelihood of failure. In any case, regulators need to dampen expectations that they will behave the same in future crises as they have in the current one, lest they encourage excessive risk-taking, the committee said.

“Current crisis management may have sown the seeds of future crises,” the committee wrote.

Harvard's Feldstein on G-20 promises

"...In the US, the Congressional Budget Office has estimated that President Barack Obama’s proposed policies would cause the federal government’s fiscal deficit to exceed 5% of GDP in 2019, even after a decade of continuous economic growth. And the deficits run up during the intervening decade would cause the national debt to double, rising to more than 80% of GDP.

Such large fiscal deficits would mean that the government must borrow funds that would otherwise be available for private businesses to finance investment in productivity-enhancing plant and equipment. Without that investment, economic growth will be slower and the standard of living lower than it would otherwise be. Moreover, the deficits would mean higher interest rates and continued international imbalances.

In contrast to monetary policy, the US president does have a powerful and direct impact on future fiscal deficits. If the presidential promise to reduce the fiscal deficit was really a commitment to cut spending and raise taxes, we could see today’s dangerous deficit trajectory be reversed.

Unfortunately, Obama shows no real interest in reducing deficits. The centerpiece of his domestic agenda is a health-care plan that will cost more than a trillion dollars over the next decade, and that he proposes to finance by reducing waste in the existing government health programs (Medicare and Medicaid) without reducing the quantity and quality of services.

A second major policy thrust is a cap-and-trade system to reduce carbon emissions. But, instead of raising revenue by auctioning the emission permits, Obama has agreed to distribute them without charge to favored industries in order to attract enough congressional votes. Add to this the pledge not to raise taxes on anyone earning less than $250,000 and you have a recipe for large fiscal deficits as long as this president can serve. I hope that the other G-20 leaders do a better job of reining in their budgets.

Finally, there is the G-20’s promise to reduce monetary and fiscal excesses in an internationally coordinated way. While the meaning of “coordinated” has not been spelled out, it presumably implies that the national exit strategies should not lead to significant changes in exchange rates that would upset existing patterns of trade.

In fact, however, exchange rates will change – and need to change in order to shrink the existing trade imbalances. The dollar, in particular, is likely to continue falling on a trade-weighted basis if investors around the world continue to set aside the extreme risk-aversion that caused the dollar’s rise after 2007. Once the Chinese are confident about their domestic growth rate, they can allow the real value of the renminbi to rise. Other exchange rates will respond to these shifts.

In short, it would be wrong for investors or ordinary citizens around the world to have too much faith in G-20’s promises to rein in monetary and fiscal policies, much less to do so in a coordinated way."

Brussels financial expert on G-20 Summit

Jakob von Weizsäcker is a research fellow at BRUEGEL, an economic-political think tank in Brussels. He previously worked for the World Bank in Washington and the German Economics Ministry in Berlin.

"The issue of banker bonuses threatens to dominate the G-20 summit in Pittsburgh. That would be the wrong signal, though, warns German financial expert Jakob von Weizsäcker. He says increased capital requirements and monitoring for banks should be given the priority in Pittsburgh.

SPIEGEL ONLINE: One year after the financial crisis, the people who triggered it on Wall Street are doing great. First the taxpayers bailed them out and now they are swimming in bonuses again.

Jakob von Weizsäcker: It is scandalous how the financial sector pocketed billions in profits in the good years and then in the crisis passed on billions in losses to taxpayers. The system is sick and needs to be reformed. But I am not certain whether salary limits for bankers should be the central issue of the G-20 summit, as German Chancellor Angela Merkel and French President Nicolas Sarkozy have proposed. It is tempting, because this is the issue voters understand the most, but it is not so important. SPIEGEL ONLINE: What's more important?

Weizsäcker: Capital requirements for banks around the world. If institutions built up bigger buffers, then shareholders would be held liable a lot faster if something went wrong. That would automatically lead them to pay their managers bonuses for exercising caution rather than taking big risks. The G-20 states also need to ensure that the monitoring of large international banks takes place on the international or at least pan-European level. Otherwise the same thing will happen again during the next crisis as happened during this one: Banks behave internationally when it comes to profits, but when it comes to losses, national taxpayers get stuck footing the bill.

SPIEGEL ONLINE: But will there be an agreement in Pittsburgh?

Weizsäcker: Many technical questions have already been negotiated prior to the summit. The early signs are positive that there will be an agreement on these issues. But what's perhaps more important is the message that Pittsburgh is sending, namely that people have understood the importance of these questions and that they don't just want to return to business as usual after the crisis.

SPIEGEL ONLINE: Officials in Pittsburgh won't even be negotiating the "exit strategy," the issue of when central banks and countries should allow their billions-strong economic aid packages to end.

Weizsäcker: No, but this discussion is happening despite that. It's not actually that complicated. In 2010, governments are expected to continue with their economic stimulus packages and banks that still need it will be provided with fresh capital. It will be expensive again, but it is necessary. Then, one year later, the governments must start to reduce their budget deficits -- not abruptly in such a way that it would jeopardize the economy, but nevertheless efficiently. Politically, that will be an enormous challenge -- for Germany, too. After all, such policies will require massive spending cuts and probably increases in taxes, too. But if the cost-cutting strategy succeeds, then there will be few worries about inflation and the central banks will be able to keep key interest rates low for some time to come, thus bolstering the economy.

SPIEGEL ONLINE: And if it doesn't?

Weizsäcker: Then things will get ugly. And there will be conflicts between central banks and governments over what should happen first: an end to the policies of low-interest rates or a reduction of national deficits totalling in the billions.

SPIEGEL ONLINE: The Americans and the British want to strengthen the global economy by forcing "surplus" countries like China and Germany, which export more than they import, to increase domestic consumption. Should Germany be concerned about its position as export world champion?

Weizsäcker: We shouldn't allow the buck to be passed to us. The causes of our trade surplus are not at all comparable with those in China. After all, there it is prescribed by the state. But that also shouldn't prevent us from rethinking the German economic model, which is heavily reliant on exports. An export-oriented strategy is really a double-edged sword. On the one hand, global trade is such a good thing precisely because it allows countries to specialize. Consider the German automobile industry -- a great success story. At the same time, such success often makes a country dependent on the ups and downs of a particular industry. When things aren't going so well, the export sectors need to be subsidized by the rest of the economy.

SPIEGEL ONLINE: Will the G-20 continue to exist if the Pittsburgh summit fails to deliver substantial results, as some experts fear?

Weizsäcker: The G-20 format will establish itself for lack of a better alternative. But if the most important issues can't be resolved by this larger group, then the G-2 -- the bilateral dialogue between China and the United States -- could become the forum for global questions. In that case, Europe would be left out in the cold.

Interview conducted by Gregor Peter Schmitz. Translated from the German.

Norwegian view of G20

"...Støre: The G-20 is a self-appointed group. Its composition is determined by the major countries and powers. It may be more representative than the G-7 or the G-8, in which only the richest countries are represented, but it is still arbitrary. We no longer live in the 19th century, a time when the major powers met and redrew the map of the world. No one needs a new Congress of Vienna.

SPIEGEL: Who do you feel is missing from the current grouping of major powers?

Støre: South Africa is part of it, but not as a representative of Africa. Saudi Arabia is part of it, but not as a representative of the Arab world. So why is the European Union represented in addition to having four individual EU member states and two others as observers? That is not acceptable. You don't have to change everything, but with a few small adjustments you could achieve a regional representation like that which we have achieved with the International Monetary Fund or the World Bank, among other organizations. We need the kind of strong, smaller alliances, or "voting groups," of the type that we see, for example, with the Nordic or the Baltic states, so that we can react quickly.

SPIEGEL: What can the Nordic countries do better than the G-20?

Støre: Taken together, the Nordic countries are the world's eighth- or ninth-largest economy. We are small in terms of our populations, but we are big in terms of our economic power. Norwegians are the biggest contributors to the international development programs of the United Nations and the World Bank. Norway's trade surplus is one-third of China's, and its current account surplus is one-third of that of Germany. Our pension and future fund (editor's note: the sovereign wealth fund that reinvests Norway's gas and oil riches for future generations) is the second largest in the world. So our experiences could be valuable in discussions about a reform of the global financial world..."

Australian view of G20

"Economic crisis begets changes in global power. Australia has been the beneficiary of economic crisis because of its strong economy and its constructive economic diplomacy. This story has played out for more than a decade. The long growth cycle from the early 1990s has not just boosted Australia's national income but given Australia a better platform in world affairs.

The narrative is on display today with the decision taken by leaders during their dinner last Thursday night at Pittsburgh and formalised at their meeting the next morning. They enshrined the G20 as the new andpermanent body for global economic co-operation, a long-run Australian objective.

The omens were apparent at the dinner when US President Barack Obama asked Kevin Rudd and South Korean President Lee Myung-bak to lead the informal discussion on global governance. Both Australia and Korea are winners from the decision to shift the global economic decisions from the G8 to the G20.

For Australia, the symmetry is remarkable. It was the Howard government's active role in the Asian crisis that guaranteed Australia's inclusion in the original G20 meeting of finance ministers held in Berlin in 1999. As former treasurer Peter Costello said: "This was a breakthrough point for Australia. We only got this seat because of our active stand during the Asian crisis."

This is undoubtedly true. There has been no change to the G20 membership since its inception. And there is no hard and fast rule to G20 membership. Some earn entry because of their regional significance (witness South Africa as the only African nation); others because of their resources centrality (witness Saudi Arabia); while Indonesia, a country with little political clout, gains entry because of its size among emerging economies.

After the Asian crisis, John Howard said: "Australia's success in the world depends upon its strong economy." This is a tangible reality. Rudd and Treasurer Wayne Swan are reminded of this every time they attend an international meeting. The 2008 great recession gave the Rudd government a fresh opportunity, the chance that the G20 would be elevated to a new status. It was George W. Bush's decision late last year to call G20 heads of government together to respond to the crisis that opened the door.

From the start, Rudd seized his chance. Sure that the crisis would provoke changes in global power arrangements, Rudd launched a campaign on behalf of the G20. His lobbying of other heads of government in person and by phone has been relentless.

Until recently, the Obama administration had reserved its final decision. Opinion was divided. For example, the head of Obama's council of economic advisers, Larry Summers, wanted to retain a small body such as the G8 on grounds of decision-making efficiency.

The risk is that the G20 will be too large and ineffective. The Europeans, grossly over-represented on the G8, wanted to retain a smaller body. There was a strong push for a G14 that would have excluded participation by nations such as Australia, South Korea, Turkey and Saudi Arabia. Rudd saw this as a serious threat. In the end, the US and China plumped for the G20 and this, in effect, sealed the deal.

Within Australian politics, the G20 has been a shared aspiration. But the opposition's claim on bipartisanship is compromised precisely because the G20 has authorised the fiscal stimulus and expansionary policy settings championed by the Rudd government and opposed, in their scale, by the Malcolm Turnbull-led opposition. Rudd and Swan, unsurprisingly, recruit the G20 decisions to depict the Opposition as hopelessly out of touch.

They are assisted because there is no stomach in the G20 for cutting back the global stimulus. With most members in a worse situation than Australia, Rudd said the view of other leaders was that "we're still well within the woods".

To this point, global co-operation to combat the downturn has been effective, in contrast with the 1930s. The Depression became more pronounced because global co-ordination failed and the wrong policies were embraced. Yet the fiscal expansion for which G20 praises itself is the easy part.

The hard part lies in implementing the Pittsburgh communique: planning exit strategies from the emergency interventions, creating a better basis for global growth and preventing any reversion to trade protectionism.

The reality, as Swan says, is that the rich world is confronting a period of slower growth. This will compound domestic demands for regressive policies.

The gap between rhetoric and action is the demon that haunts the world. There will be many critics saying the G20 is grossly overrated. Just ask them, in reply, what better solution they propose: the G8 or the UN? The G8 has lost its legitimacy in economic decision-making though it continues to deal with security issues. The UN General Assembly has no ability to reach agreement on responses to the global crisis.

This penetrates to the significance of the Pittsburgh decision.

In a world where the need for agreement is greater than ever but striking such agreements is harder than ever, the G20 is perhaps the last best hope for negotiated multilateralism. With only 20 members, it represents 85 per cent of global GDP. This creates the chance for some modest co-ordinated action.

The limits to the G20 summarise the present international condition. The biggest single question in global financial imbalances lies in US-China exchange rate management. That is too sensitive for the G20 and must be addressed directly by the US and China. The G20 wants the successful completion of the Doha trade round by 2010 yet its own members have impeded such progress. It calls for a climate change agreement in Copenhagen knowing that nations remain divided by competing national interests that are unlikely to be resolved for many years.

The almost guaranteed failure to reach genuine agreement at Copenhagen (as distinct from gesture politics) sets the scene for new and punitive divisions between nations. Europe, led by France, talks about new tariffs to punish rich nations that refuse to impose hefty cuts in greenhouse gas emissions. It is a threat that may become more than idle.

Meanwhile Obama, plagued by expectations about his ability to solve the world's problems, is trying to reposition the US. By opting for the G20 framework, Obama concedes the relative decline in US power and champions a new strategy of pragmatic engagement with the world.

Rudd works as closely as possible with Obama. But the lesson in a world where global agreements are more difficult than before is the imperative of national leadership to deliver better national economic performance."

G20 discussion of competition in the financial sector

Competition in the Financial Sector

The G-20 has identified competition as one of the driving forces of economic growth.

Given the particular expertise of G-20 members, the scope of the proposed Workshop focuses on competition in the financial sector. The level of competition in the financial sector affects the efficiency of the production of financial services, the quality of financial products and the degree of innovation in the sector. The degree of competition in the financial sector can also influence firms’ and households’ access to financial services and external financing. Most importantly, competition in the financial sector is linked to economic growth and stability.

The Workshop will seek to cover the most important topics of this very broad theme. After an introductory discussion of best practices in competition policy and the benefits to the economy more broadly highlighting possible differences between the financial and other sectors, the focus will be on the benefits and risks related to increased competition in the financial sector, the relationship between competition and financial stability, the role of regulatory frameworks, the impact of greater openness to foreign bank competition on local financial systems, the implications of consolidation for competition in the financial sector and the role played by non-bank financial institutions in promoting competition in the banking sector, among other topics. In addition, the links between competition in the financial sector and economic growth will be explored.

G20: Economic summit snapshot

Source: G20: Economic summit snapshot BBC

Find out more about the economic challenges faced by member states and what signs of recovery are starting to appear in this BBC article.

G-20 organization

The G-20 operates without a permanent secretariat or staff. The chair rotates annually among the members and is selected from a different regional grouping of countries. The chair is part of a revolving three-member management group of past, present and future chairs referred to as the Troika. The incumbent chair establishes a temporary secretariat for the duration of its term, which coordinates the group's work and organizes its meetings. The role of the Troika is to ensure continuity in the G-20's work and management across host years.

Members of G-20 In 2009, there are 20 members of the G-20. These include the finance ministers and central bank governors of 19 countries:[1]

  • Argentina: President
  • Australia: Prime Minister
  • Brazil: President
  • Canada: Prime Minister
  • People's Republic of China: President
  • France: President
  • Germany: Chancellor
  • India: Prime Minister
  • Indonesia: President
  • Italy: Prime Minister
  • Japan: Prime Minister
  • Mexico: President
  • Russia: President
  • Saudi Arabia: King
  • South Africa: President
  • South Korea: President
  • Turkey: Prime Minister
  • United Kingdom: Prime Minister
  • United States: President

The 20th member is the European Union, which is represented by the rotating Council presidency and the European Central Bank.

In addition to these 20 members, the following forums and institutions, as represented by their respective chief executive officers, participate in meetings of the G-20:

  • International Monetary Fund
  • World Bank
  • International Monetary and Financial Committee
  • Development Committee of the IMF and World Bank

References


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