The leaders of the world's largest economies will agree today that it is too early to relax measures to stabilise the battered world financial system, despite signs of recovery.
The G20, however, will paper over important differences of emphasis between the major players on what the next steps should be, particularly in respect of ensuring that the global economic recovery does not begin to stall and that the calamity experienced over recent months never repeats itself.
Highly sensitive issues likely to be left for another day include the future of the US dollar as the dominant world currency – China and Russia have both suggested that its role as the de facto global reserve currency may be coming to an end – and whether headway can be made on giving greater representation to developing countries on international institutions like the International Monetary Fund.
Among areas of tension is the emphasis the leaders will put on steps to curb pay and bonuses for bankers, which has been championed, by European countries in particular. For its part, the US came to this summit hoping rather to emphasise its plans for new financial regulations to ensure that banks have greater capital margins so the risk of their failing and needing taxpayer bailouts is diminished.
The message today in Pittsburgh, however, will be that this is not the time for governments to take their eye off the short-term challenge of climbing out of this downturn. The necessity of keeping stimulus measures in place will be underscored by the Prime Minister, Gordon Brown, among others.
"Once the fire is out, there's water everywhere, it has to be mopped up," said Dominique Strauss-Kahn, the IMF chief. "In Pittsburgh, we have to say, there are still fires to be put out, we'll see later how to do the mopping up."
Chief among the longer-term questions is how better to rebalance the world economy. There will be some discussion on the need for the rest of the world to depend less on American consumers to keep the wheels of the world economy turning.
The US would like China to move from its current export-based model to one that relies more on domestic consumption. How all of that is achieved and what impact it will have on the future role of the dollar is not easily answered, however.
Travelling to Pittsburgh from Berlin last night, the German Chancellor, Angela Merkel, signalled her own determination that the G20 – representing roughly 85 per cent of the world's economic activity – should focus first on new bank regulations to ensure that they are no longer able to take the kinds of risks that have been blamed for triggering the downturn.
"Pittsburgh will be decisive in determining whether the subject of financial market regulation continues to be a central issue. For us, it is the most important subject at the meeting," she told reporters.
The theme was taken up by Jose Manuel Barosso, the President of the European Commission. "If recovery is to last, the G20 must step up reforming financial markets, with zero tolerance for any return to the 'bad old ways'," he wrote in a newspaper article.
"Europeans are horrified by banks – some reliant on taxpayers' money – once again paying exorbitant bonuses."
It is unlikely that the leaders will leave Pittsburgh without indulging at least in some self-congratulation. Since their London gathering in April, when the tempest was still in full force, there has been ample evidence that steps agreed there, including the commitment of hundreds of billions of dollars to the IMF to carrying out recession fire-fighting, have had some effect.
While the speed of recovery will vary in different parts of the world, most regions are seeing evidence of it. Yesterday, the US reported lower-than-expected new jobless claims. And on Wednesday, the US Federal Reserve indicated that growth had returned to the American economy.Reuse content