Pittsburgh G20 Summit To Expose Mixed Record, Friction
By Henry J. Pulizzi, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- During the heat of the global financial crisis the
Group of 20 nations agreed they needed to take dramatic steps together to keep
the global financial system from collapsing.
With the crisis waning, the G20 summit in Pittsburgh next week is likely to
expose the group's mixed track record and continued friction over the best way
to coordinate financial regulation worldwide.
Less than a year after their first crisis summit in Washington, the G20
leaders' results have been mixed. Consensus on unwinding stimulus measures,
stiffening bank capital requirements and addressing bankers' bonuses has been
hard to find. Trade spats overshadow lofty anti-protectionist rhetoric. And the
nascent economic recovery may squelch the momentum for a regulatory overhaul.
"It is one thing to make grand promises. It is quite another to do the heavy
lifting to honor those pledges," said Dan Price, a former international economic
affairs assistant to U.S. President George W. Bush. "Accountability is critical
and it will be important to see whether countries are keeping their promises."
At the heart of their talks, leaders will agree that although the world
economy is showing signs of life it's still too soon to pull back on the
emergency stimulus measures implemented during the height of the crisis.
There may be less agreement, though, on what the global economy will look like
going forward. The White House wants leaders to agree on a new "framework" to
address the global imbalances it believes contributed to the economic crisis.
That would mean shifting to more savings in debtor countries like the U.S. and
more consumption in China and other major emerging economies.
"We hope to reach an agreement with the rest of the G20 on a framework for
balanced and sustainable growth," said Mike Froman, the deputy national security
advisor for international economic affairs. He added the White House wants a set
of policies, parameters and process that avoids "the sort of imbalances that
contributed to this crisis."
Froman said there should be "some process there for holding each other
accountable." But specifics of the framework and its enforcement mechanism won't
emerge until the eve of the Sept. 24-25 summit, he said.
Steven Dunaway, senior fellow for international economics at the Council on
Foreign Relations, expects "significant resistance" to the U.S. proposal from
China, but fears that the prospects for world economic growth are gloomy if
imbalances aren't addressed.
"Unless we come to grips with it, we'll find ourselves in a situation where we
can't move forward effectively," Dunaway said.
China has long said that it's gradually moving its economy toward a more
consumption-based model, but that it will take time to transition away from a
dependence on exports. Rather than global imbalances, it blames the financial
crisis largely on a lack of supervision and the risky use of leverage in
developed countries.
"People should not only focus on one thing, that is balancing the economy,"
China's Ambassador to the U.S. Zhou Wenzhong said Thursday.
Charles Freeman, a China expert at the Center for Strategic and International
Studies, said that while many Chinese recognize the need to rebalance, public
attitudes make it difficult.
"The Chinese and other parts of Asia really are hoping on some level for a
return to normal, return to the previous structure because they were doing quite
well, at least in their view, in a situation in which the United States was
over-consuming and overspending," Freeman said.
Politics are impeding some of the G20's other top priorities. Officials say
the U.S. decision to impose tarrifs on Chinese tire imports won't balloon into a
trade war or create tension in Pittsburgh. But it has raised questions about the
G20's willingness to live up to its promises on trade. The group has routinely
vowed to resist protectionist measures and wrap up the long-stalled Doha trade
talks.
But since they met in Washington, G20 countries have broken the anti-
protectionism promise every three days, according to a report released Friday by
Global Trade Alert, a project coordinated by the London-based Centre for
Economic Policy Research. The report says G20 governments have implemented 121 "
beggar-thy-neighbor" measures since last November.
When it comes to trade, Dan Griswold, director of the Center for Trade Policy
Studies at the libertarian Cato Institute, expects next week's summit to produce
"soaring rhetoric and not much action." The decision on Chinese tires "will just
make any statement on free trade almost laughable," he said.
Another agenda item for the Pittsburgh summit has exposed differences between
U.S. President Barack Obama and his European counterparts - executive
compensation. Addressing popular unease over bankers' bonuses, German Chancellor
Angela Merkel and French President Nicolas Sarkozy have pushed for strict
restrictions, including caps on the variable part of pay packages. The Obama
administration, meanwhile, wants an approach that focuses on corporate
governance, aligning pay with risk and performance and imposing stronger capital
requirements.
"If the Europeans go their own way on compensation, seek more than shared
principles, and sanction those who don't go along, we'll have a real economic
clash that will harm global financial recovery efforts," said Price, the former
Bush administration official.
The Financial Stability Board will present recommendations in Pittsburgh that
would limit bonus pools at banks that don't meet certain capital requirements.
Earlier this month, G20 finance ministers agreed that a portion of bonuses could
be "clawed back" if bank performance deteriorated, and that a share of bonuses
should be deferred. But the details were left for the leaders to conclude in
Pittsburgh.
A proposal by the U.S. Federal Reserve would allow the central bank to reject
compensation policies it believes encourage risk-taking by bank employees.
Other issues on the table in Pittsburgh include climate change, finding
consensus on how to measure the amount of capital that banks are required to
hold and China's push for a greater developing-world voice at the International
Monetary Fund and other global institutions. Giving China more IMF voting
rights, however, would likely come at the expense of smaller European countries,
which are resistant to the reform.
-By Henry J. Pulizzi, Dow Jones Newswires; 202-862-9256; henry.pulizzi@
dowjones.com
(Maya Jackson Randall contributed to this article.)
(END) Dow Jones Newswires
09-18-091029ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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