07 September, 2009
G20 and Global Economy
The world, it seems, has averted a new Great Depression, and financial leaders of the world’s 20 biggest economies have met to pass out some medals — to themselves.
Finance ministers and central bankers from the US, Europe, China and other global power centres emerged on Saturday from a two-day huddle in London to claim much of the credit for protecting capitalism as we know it.
The moneymen from the so-called Group of 20 congratulated themselves for their “unprecedented, decisive and concerted policy action (that) has helped to arrest the decline and boost global demand.” Immodest as that may sound, the ministers and government bankers are right. They deserve our gratitude for learning from the financial catastrophe of the 1930s and coordinating the flood of public spending that is now reviving illiquid markets worldwide. Their orchestrated response to the crisis was a tour de force of near global government.
But the mutual back-slapping in London was brief. In their final communiqués, the G20 financial chiefs laid out a daunting to-do list of the steps they deem necessary to ensure a long-term recovery. They fretted about the prospects for growth and jobs, particularly in poor countries, and agreed that banks must add to their capital cushions as a bulwark against future financial emergencies.
The delegates also took initial steps toward strengthening oversight of the financial services industry, a cauldron for the raw greed and soft-touch regulation that so sickened the world economy. Indeed, most of the hype leading up to the weekend summit concerned bankers’ compensation — specifically, an outcry for limits on the benefits and salaries that senior bankers should be allowed to earn.
Predictably, the volume on such cries was loudest in European countries such as France and Germany, where egalitarian instincts run deeper than in most English-speaking nations. The US, for example, has elevated its reverence for the ‘self-correcting market’ into a national fetish. But as shaky US banks helped themselves to public funds only to award fat bonuses to their senior executives, rednecks and Ivy-leaguers alike began yelling for a crackdown on plutocrats.
On this front, the G20 ministers offered mostly strong words. They called for greater transparency on how banks decide what to pay their executives and demanded global standards on executive salaries and bonuses, including a “clawback” of payments if a bank’s profits tumble.
But they tasked an afilliated body — a panel of international regulators called the Financial Stability Board — with putting the teeth into these recommendations.
The Board is to report back later this month, when the G20’s political leaders meet at a summit in Pittsburgh in the US state of Pennsylvania.
Pittsburgh, once the centre of the American steel industry, is a pleasant town with a history of rapacious capitalism and class warfare. In other words, an apt arena for the next stage of global economic reform.
Khaleej Times
