World leaders pledged yesterday to cut taxes and boost government spending to drag their economies out of recession, and to begin work on a new system for regulating the battered global financial system.
The heads of 20 countries, meeting in Washington, endorsed a series of broad goals to fend off future economic calamities and to revive economic growth. They are expected to reconvene in London in April, with the incoming US President, Barack Obama, to decide on longer-term measures. “We must lay the foundation for reform to help ensure that a global crisis, such as this one, does not happen again,” the leaders said in a joint communiqué issued after the conclusion of the G20’s emergency two-day economic summit.
Gordon Brown called the deal a “road map” to pull the world out of the credit crisis and predicted that participating countries will, in the coming weeks, unveil packages of tax cuts or spending programmes designed to stimulate their economies. If all 20 governments, accounting for 90 per cent of the world’s GDP, acted in concert, he said, the effect on the world economy would be magnified. Among other things, leaders agreed to reform international financial institutions such as the World Bank and the International Monetary Fund to help developing countries weather the economic storm. And they promised to restart a round of international trade talks moribund since July.
The final communiqué listed six steps world leaders agreed to take immediately – including “vigorous efforts” to stabilise the financial system, using “fiscal measures to stimulate domestic demand” and helping “emerging and developing economies gain access to finance in current difficult financial conditions”. And it ordered national governments to come up with an action plan for reforming international regulatory co-operation, banking rules and accounting practices before the end of March. Britain takes over leadership of the G20 from Brazil in the new year and is expected to host a follow-up summit in April.
That timetable has the advantage of bringing in the new administration of Barack Obama, without whom little specific detail can be agreed. The President-elect sent two envoys to meet foreign delegations in Washington but stayed in Chicago, assembling his team.
As if his non-presence wasn’t being felt strongly enough, Mr Obama’s first weekly address was broadcast on radio and on the internet just as the summit reconvened yesterday morning for its most intense phase of talks. “I’m glad President Bush has initiated this process, because our global economic crisis requires a co-ordinated global response,” Mr Obama said, before adding his support for a new US economic stimulus package that he said would be his first act as leader, if one had not already been passed.
Leaders began the summit on Friday with a “working dinner” at the White House. They resolved to work together to fill gaps in national regulation and overcome weaknesses in international co-operation between regulators, which many blame for the credit crisis. While a new era of international regulatory co-operation will help reshape financial markets, the G20 summit fell short of the “Bretton Woods II” that Mr Brown predicted.
But the Prime Minister insisted that it was “the road to the new Bretton Woods. It is absolutely clear that we are trying to build new institutions for the future.” French demands for a supra-national regulator with powers to enforce rules on multinational companies appeared to gain little traction as the summit progressed, although a British plan for a “college of supervisors”, bringing together national regulators to examine risks posed by multinational banks, got support.
There were also promises on changing Wall Street pay practices to ensure they don’t reward excessive risk taking, and on tightening control of credit-rating agencies.
French President Nicolas Sarkozy praised the agreement for being the first to promise curbs on Anglo-Saxon free market capitalism. “Never before have Anglo-Saxons agreed to subject rating agencies to oversight and regulation,” he said. “I’m a friend of the US, but it wasn’t always easy. We had to convince. It was a long night, there were misunderstandings to overcome, but that’s what dialogue is about.”
The G20 summit brought together Western leaders and those from emerging economies, including China, Brazil and India, who have been pushing for a greater say in the running of the IMF, something they were promised yesterday.