London summit 2009: the issues
Updated on 30 March 2009
Who will be arguing for what at the forthcoming G20 summit at the ExCeL centre in London?
This week's G20 summit will address several key issues. That these issues are on the agenda reflects both the reality of the world economic crisis and the fact that it coincides with the emergence of new economies as major players in the global financial system.
The aim of every country represented at the gathering will, necessarily, be to promote its own interests. The priorities of the world's largest oil producer, Saudi Arabia, for example, will be different from those of the UK, with an economy heavily dependent on its financial sector.
But the shifting plates of globalisation, financial interdependence and the world recession mean that larger blocs of influence have also emerged whose aims lead in different directions.
The following are among the main themes under discussion in London this week.
- Financial stimulus
- Tougher regulation
- Restructuring the IMF
- Move against protectionism
- Crackdown on tax havens
Map of G20 countries
Click the image below for a map of the key policies each country has been promoting.
Financial stimulus
Along with Japan and Turkey, the main cheerleaders for a concerted global financial stimulus are the United States and the United Kingdom. President Obama and Prime Minister Brown believe that reviving the markets and a recapitalisation of the banks are key to solving the crisis.
Angela Merkel, the German chancellor, has noted that unlike the United States, Europe's social democratic model already has welfare systems that will cushion the effects of the recession in the future.
But Gordon Brown's support for the US approach has been undermined by his own central banker, Mervyn King, governor of the Bank of England, who has warned against the wisdom of a second injection of liquidity into Britain's financial system.
The fact that there is little sign yet that the raft of stimulus measures already introduced by the British and other governments has done anything to slow the downturn has been used by countries such as Germany and France to justify their opposition to further fiscal stimulus at this stage.
And Angela Merkel, the German chancellor, has noted that unlike the United States, Europe's social democratic model already has welfare systems that will cushion the effects of the recession in the future, mitigating the need for further stimulus.
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Tougher regulation
The position of the eurozone's two major economies, Germany and France, along with that of Italy, China, Japan, Brazil, Canada, and Argentina, is that tougher regulation of banks and other financial institutions is essential.
Specifically, the French want tighter control of hedge funds and of credit rating agencies, a view supported by Germany and Italy, but also by the Czech Republic (which holds the EU presidency) and Spain (not formally a member of the G20 group).
The Anglo-American axis is not itself resistant to tougher regulation, but the United States could object to any European push for the creation of new bodies to supervise the financial markets.
That said, the Obama administration appears to have moved away from its initial pre-G20 declaration, in which no mention was made of the need for financial regulation.
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Tied to IMF reform is a move to replace the dollar as the main international reserve currency.
Restructuring the IMF
The growing influence of the emerging economies is clearest in the calls for a repositioning of the role of the IMF (International Monetary Fund).
A majority of G20 participants - notably China, Mexico, Russia, Saudi Arabia and Indonesia, but also including the UK, the eurozone, Canada, Germany and Japan - have endorsed such a move, although it would certainly involve a loss of European power in both the IMF and the World Bank
The IMF is dependent on the contributions of members, and presently faces a shortfall in revenue. This gives major "developing" economies like China added leverage in pressing for a greater say in how the IMF is run as a quid pro quo for extra money (although China at present appears reluctant to lend).
Tied to IMF reform is a move to replace the dollar as the main international reserve currency. The new instrument would be derived from the IMF's "special drawing rights" (SDR) currency, launched in 1969 and at present based on a basket of currencies including the US dollar, the yen, the euro and the pound sterling.
The BRIC countries (BRIC is an acronym of "Brazil, Russia, India and China") are all keen to promote the idea of a super-sovereign international reserve currency. The US is firmly against the proposal.
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Move against protectionism
In a globalised economy, protectionism is hard to justify. But politicians are answerable to a national, not international, constituency, so there is an inevitable impulse towards protecting domestic industry and jobs during a recession.
Gordon Brown famously spoke of "British jobs for British workers" at the last Labour party conference in September. And critics attacked the French government when, in February of this year, it asked state-supported car manufacturers to invest and to locate production plants within the country.
In response, countries including Turkey, Brazil, Canada, India, Japan and South Korea have reaffirmed their commitment to free markets, as well as their desire for stricter wording in any summit communiqué of clauses opposing the imposition of trade barriers.
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Crackdown on tax havens
Public resentment of tax havens is one of the emerging themes of this recession.
The United States has confirmed that the G20 summit will issue a statement encouraging tax havens to increase transparency and adopt international standards.
And Gordon Brown has pledged to use this week's gathering to push for new rules punishing multinational businesses for avoiding tax through offshore shelters.
Other nations calling for a crackdown on tax havens include France and Argentina.
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