G20 Summit: an easy guide to judge its success or failure

G20 Summit: an easy guide to judge its success or failure

Leaders are likely to declare the G20 summit a triumph today, but what will that mean? Economics Editor Edmund Conway offers some answers.

Last Updated: 6:35AM BST 02 Apr 2009

Let's kick off with a few predictions. At half past three today, Gordon Brown will end the G20 summit with a grand declaration of unity in the face of the worst economic and financial crisis since the 1930s. Despite the threat of temper tantrums, no leader will storm out – not even Nicolas Sarkozy.

This might disappoint protesters and, dare I say it, journalists, some of whom rather wish things would descend into disaster. But whatever their rhetoric, the leaders meeting in London today know that a breakdown in the G20 would be the surest way of consigning the world to a depression far greater in scale and misery than the 1930s. Or at least one hopes they do.

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But how will we be able to judge their success or failure? Here are seven ways to decode the most important heads-of-state summit in decades.

1, Don't expect an apology
It wouldn't be such a bad idea, in the face of social unrest that stretches from the doors of the Bank of England to the streets of Eastern Europe, for our leaders to admit they made mistakes and were partly responsible for the crisis. Done under the G20 banner, it wouldn't implicate one government more than another. But it seems unlikely, given the widespread recrimination throughout Europe towards the Anglo-Saxon economies, whom most outsiders blame for causing the crisis.

However, such sentiments are misplaced. The initial seeds for the crisis may have lain in the behaviour of sub-prime mortgage brokers and the financial engineers who sold on the associated debt, but practically no one is innocent when it comes to the crisis that has since ensued.
Britain and America may have been guilty of borrowing too much and building up unsustainable budget deficits, but Germany, Japan and China were guilty of generating massive current account surpluses by pumping out goods around the world. Now, both sides are suffering: the worst plunge in economic output this year will be felt not by the US or UK but by Japan and Germany. The imbalances in their economies were even worse than those in the Anglophone world, but the fact that they were "good" current account surpluses rather than "bad" deficits disguised their lethal nature.

An apology would not bring the crisis to an end; but it might help stem at least some of the unrest that is sure to escalate in the coming months.

2, Ignore Sarkozy; watch Merkel
The French president has hogged most of the headlines in the run-up to the conference, threatening to walk out unless his suggestions for a new international financial regulator are adopted. But his pledge is an empty one: the G20 has already indicated that it wants to strengthen international financial oversight, meaning that Sarkozy is already pretty certain of being able to declare victory on this front.

Better, then, to pay attention to the German Chancellor. Europe's biggest economy is now all but isolated in its view that the solution to the crisis is neither more borrowing nor lower interest rates. Everyone, from the United States and Australia to Japan and China, has pledged to spend more to prevent the recession from deepening. Even those who cannot afford that much extra – the UK, for instance – have agreed that more spending is the way forward. The only nation to stand forcefully in the way of an accord on fiscal stimulus is Germany, supported from the back by Italy and Russia, while France wavers moodily behind them.

This intransigence is dangerous. There is a very real possibility that, just as happened in the 1930s, the world will be torn into two separate economic blocs: those that attempt to reflate their economies and those that choose to liquidate, to sit back and to let destruction take its course. The latter is the path that the United States took in the 1930s, and the direction the Germans seem intent on travelling. So listen carefully to Merkel's press conference: is her rhetorical resistance to the need for a fiscal boost wavering?

3, Don't be fooled by the International Monetary Fund 'triumph'
One of the likely headlines tonight will be the decision to donate something like $500 billion to the IMF. This ought not to be downplayed: without the IMF to support them, certain countries in Eastern Europe and beyond would have defaulted on their loans, and seen their governments collapse. But to claim this as a victory is simply not true: it was effectively agreed at the finance ministers' summit last month, and has merely been held back in case the rest of the summit was a complete disaster. In short, the more noise is made about the IMF, the more likely it will be that the G20 has flopped.

4, Regulation, regulation, regulation
Politicians and commentators may have pitched the summit as a battle between those who believe countries should pump more cash into their ailing economies and those who want instead to remodel the shape of the world's financial system. In reality, the distinction is misleading. All major countries are in favour of eradicating the weaknesses in the system that contributed to this mess.

So, if you are after some tangible sign of progress from the summit, check out what agreement there has been on regulation. Nothing will change overnight – after all, any policies need to be ratified by national governments – but an agreement at the G20 may well signal the beginning of the end for unregulated finance: this could be the meeting that flicks the switch that whirs the wheel that turns the cog that swings the hammer into the hedge fund industry. Also, an agreement on more transparency in tax havens would undermine the argument that any further regulation will only drive the smartest and best minds overseas.

5, For Obama, the real story is not the G20
Don't get me wrong – the President of the United States is as determined as Gordon Brown and most of his G20 counterparts to make a success of the summit. But the trip to London is double-edged: on the one hand, there's the G20; on the other, there's the opportunity for bilateral meetings with his major counterparts around the world.

President Obama is tentatively but most definitely feeling his way towards a new set of global alliances that will shape economic and diplomatic life for decades. Should the G20 really flop, either publicly or privately, the US will embark on Plan B – cementing ties with individual nations. As such, the real story yesterday was not the Brown/Obama press conference, but the US President's meeting with Russian president Dmitry Medvedev, and his agreement to visit China later this year.

On a related point, watch closely to see what the Chinese authorities say about the dollar: the Asian tiger has already questioned the US currency's position as the world's reserve currency. Might it make an unexpected push to instill this into the final statement?

6, Don't expect any big surprises out of the communique
The concluding announcements from big summits are usually drafted weeks, if not months, in advance by the teams of "sherpas", who advise the ministers and heads of state. The most the G20 can hope to achieve in today's four and a half hours of meetings is to elide a few phrases here or add a couple of numbers there. The real giveaway will be the mood of the heads of state in their press conferences: should any of them hint at dissatisfaction with the meeting's conclusions, that's the story.

7, We do need a global agreement on resolving the crisis, but it probably won't arrive today
It is plain wrong to suggest, as some have, that nothing ever comes out of these big international summits – you only have to look back to the G7 meeting in Washington last October, when the world's major leaders agreed on principle to bail out their stricken banks and safeguard depositors. Things didn't change overnight, but the agreement laid down the conditions that helped the financial system avoid outright collapse. This radical agreement was sealed in the face of a crisis, in the weeks following the collapse of Lehman Brothers. If the world is not to slide into a protectionist spiral, we need a similar agreement on how to tackle the economic, as opposed to financial, crisis.

The real question is whether the sense of urgency is as great as it was in those weeks in October. Leading economic institutions predicted this week that 2009 will see the worst global recession since the Second World War, and the biggest collapse in world trade since the 1930s. Whether that will be enough to galvanise any kind of agreement remains to be seen.

http://www.telegraph.co.uk/finance/financetopics/g20-summit/5092470/G20-Summit-an-easy-guide-to-judge-its-success-or-failure.html