G20: a damp squib won't be the end of the world
Posted By: Edmund Conway at Mar 30, 2009 at 12:50:26 [General]
Posted in: Politics , Business , Economic Pulse
Tags:View More G20, global recession, Gordon Brown, london, Obama, summit
I've written enough times - before the finance ministers' summit for instance - that we can expect little in the way of tangible economic agreements out of the G20. This would be expecting too much (knowing what today's bunch of politicians are and aren't capable of). The world's financial system has collapsed; the very foundations of both it and the precepts that underpin global capitalism have come under question. These kind of disturbances cannot be undone or repaired overnight.
And so it is hardly a surprise that it is now dawning on politicians around the world that, in terms of actual output, the summit in London this week will be something of a damp squib. The draft communique has been leaked and looks dismally familiar: refutations of protectionism, calls for more free trade, rather blithe commitments to rescue packages for both their economies and their financial infrastructure. In fact, the phrases that have wafted out sound remarkably similar to the mantras Gordon Brown has been emanating around the world on his recent tour (for instance, a "global crisis requires a global solution"; or "we are determined to restore growth now, resist protectionism, and reform our markets and institutions for the future" or "we are determined to ensure that this crisis is not repeated.")
I can confidently predict that on the day the politicians and officials - keen to avoid the accusation of inaction or incapacity - will pepper the press with news of breakthroughs: a new $500bn plus donated to the International Monetary Fund, for instance, and further clampdowns on tax havens, to take two. But this will be done (perhaps successfully) in order to divert attention away from the lack of concrete results.
However, before one declares this a failure before it has even begun, it is worth bearing a couple of things in mind - however cynical one is. First, the real story of a big summit like this is rarely predictable. Most big financial or political meetings are preceded by plenty of debate and speculation over their likely outcome. The eventual story is often quite different. And by eventual story, I mean not the headlines that come out the day afterwards but the extent to which it shapes policy in the following weeks and months, the reaction in markets as time goes on, the impact on currencies and the effect on economic data - in short the historical significance of the summit.
Second is the fact that in the case of a major summit like this success or otherwise should be defined not in terms of concrete policies but in terms of the mood music surrounding the event. The 1933 London conference was a disaster because too many politicians either didn't turn up or showed a disappointing apathy about actually getting round the intractable problems of the day (which largely revolved around the gold standard). So as sceptical as I am (and as I am sure you are) about the bon mots from Brown, President Obama et al about unity being essential, I believe this is one of those rare moments when a show of unity is extremely important - in both economic and political terms.
Having resigned myself to the fact that it is too late to come up with a decent, comprehensive plan either to bail out struggling nations or to repair and reshape the financial system, I personally will judge the relative success of the summit on whether the leaders seem to be singing from the same hymnsheet. If they aren't, it is truly time to get worried, for it harks back to the 1930s when different blocs of nations took radically opposing economic strategies for escaping depression, with the result that for some countries the downturn was far nastier than it should have been.
However, in absolute terms, the summit already looks unpromising. The fact is that there are some important concrete agreements the G20 should be trying to achieve that seem simply to have been forgotten. For a more detailed guide of the kind of things they could or should be doing, and why, check out Willem Buiter's blog and Simon Johnson's here and here (as the former IMF chief economist his analysis over the next week or so will be particularly invaluable and important).
My plan over the next week, along with the Telegraph's other writers, is to try to look beyond the excitement surrounding both the visit of President Obama and the glitz surrounding the summit - not to mention the small news stories that flow out of it - and to try to determine precisely what this means for the world economy in the long-run.
http://blogs.telegraph.co.uk/edmund_conway/blog/2009/03/30/g20_a_damp_squib_wont_be_the_end_of_the_world
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