British officials are downplaying the chances of major breakthroughs on banking reform at the G20 summit beginning today in the South Korean city of Busan, which will be Chancellor George Osborne's first major outing on the international stage.
Having made a dramatic start on the task of cutting Britain's budget deficit – proportionately the largest in the G20 group of industrialised nations – with £6bn of immediate cuts announced last week, Mr Osborne is thought to be keen to stress to his counterparts the need to reduce deficits in those countries that have had the worst record on controlling borrowing.
At the same time, Mr Osborne also wishes to see the surplus nations in the G20, such as China, do more to boost domestic demand and consumption and reduce the massive trade surpluses they run with the US and Europe. These "global imbalances", especially in Sino-American trade, are blamed by many economists as the cause of the financial crisis and ensuing recession.
Successive G20 communiqués have called on member states to co-ordinate the elimination of such imbalances, but with comparatively little impact. If anything, tensions between the White House and Beijing have heightened recently, complicated by Chinese diplomatic support for North Korea.
Although there is a broad consensus on the need for nations such as the UK to trim their borrowing, some figures in the US administration, such as Barack Obama's economic adviser, Larry Summers, have wondered aloud about the dangers if all the world's major economies deflate at once.
British officials believe the chances of any swift international agreement on the various plans for bank levies now being floated are limited. The full G20 heads of government summit, which David Cameron will attend in Toronto on 26 June, will probably be the forum where the final shape of an global agreement is forged.
The coalition has indicated that, if necessary, Britain will unilaterally impose such a levy if international agreement is taking too long. Yesterday, the business secretary, Vince Cable, repeated the Government's support for "a levy on the banks to reflect the fact that, at least until banks are made safe through structural reform, the taxpayer is providing insurance: protection for which the banks should pay".
Splits on the wisdom of a global bank levy persist even after the International Monetary Fund (IMF), at the request of the G20, published its proposal for two new taxes earlier in the year.
"I don't think we're on the verge of a global consensus on bank levy yet," the US Treasury Secretary, Timothy Geithner, said in Seoul yesterday. "There is not universal support for that across the G20, at least at this stage. And I don't think that's going to change in Korea."
The IMF is likely to be asked to continue working on its proposals. It proposed two bank taxes in April but the G20 asked it to refine its ideas following opposition from some countries, such as Canada, Brazil and China.
Other structural reforms to the banks, especially on the "too big to fail" issue, are also likely to be discussed, but again progress is glacially slow in the face of international disagreement on how to go about it.
The meeting will ask the Financial Stability Board (FSB) – a "club" of international financial regulators and central bankers – to consider new measures to improve transparency in the $615trn off-exchange derivatives sector, hedge funds and credit ratings agencies. The German and French governments have been especially vociferous in attacking these financial interests.
Apart from the Treasury team, the UK will be represented by the Governor of the Bank of England, Mervyn King and one of his Deputy Governors, Charlie Bean.Reuse content