Leading article: An economic step forward, but the work is not done

The G20 must still confront banking empires and global imbalances

Share
Related Topics

The centrepiece of this week's G20 meeting in Pittsburgh was a welcome capitulation to reality. The participants agreed that the G20 will henceforth replace the G8 as the central forum for overseeing the global economy. They also sanctioned a redistribution of power within the International Monetary Fund, giving a greater voice to developing nations.

The economic slump and its aftermath have confirmed the status of China, India, Brazil and others as the new powerhouses of the global economy. Yesterday's communiqué is a sign that the European and North American club that has dominated global economic forums for half a century has finally recognised this shift.

The other achievement of the meeting was some welcome steps forward on regulating global finance. There was a confirmation that private banks will be required to hold more capital to ease the need for them to raid taxpayers' wallets when their investments turn out to be bad. And there will also be stricter regulatory oversight of the bonuses paid by banks to their employees and executives. France and Germany were accused of populism in pushing the issue of bankers' remuneration up the agenda in Pittsburgh. But they were right to do so. In the years of the boom, financial sector workers, incentivised by vast bonuses for short-term profits, helped to pump the system full of risk. Moreover, France and Germany were right to stress that now is the time to reform finance. To wait for the banks to begin blowing a new speculative bubble would have been the height of political irresponsibility.

Yet, despite these forward steps, the G20 also failed to engage with two of the largest and most complex problems afflicting the global economy. The first is the fact that some of the world's largest banks have emerged from this crisis as taxpayer-guaranteed deposit-taking institutions welded to giant trading casinos. It was probably too much to expect the G20 to announce a mandatory split between retail and investment banks, but there should have at least been some recognition of this "too-big-to-fail, too-big-to-save" problem.

Second, the global economic imbalances that contributed significantly to last year's meltdown were barely mentioned in the communiqué. For the past decade, the likes of China, Germany and Japan have been running huge trade surpluses and the US, Britain and Mediterranean countries large deficits. These trends are two sides of the same coin. To put it crudely, their excess national savings are our excess national borrowings. Floods of these savings, particularly from Asia, drove down long-term interest rates and helped to blow up the disastrous debt bubble that burst spectacularly last autumn.

Over the medium term, deficit countries need to save more and surplus countries need to increase their domestic consumption. At the moment, some of those surplus countries are not even prepared to acknowledge that there is a problem. That is worrying because unless these imbalances are reduced, the world could be heading for a period of protracted low growth, or worse, a repeat of last year's meltdown.

The reorganisation of global regulatory and supervisory structures announced yesterday gives reason to hope that world leaders and financial authorities can return to these problems in time. They need to – because the work necessary to chart a course towards a more stable economic future is a long way from complete.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Sales Executives - OTE £60,000

£25000 - £60000 per annum: Recruitment Genius: Are you passionate about Custom...

Recruitment Genius: Care Workers Required - The London Borough of Bromley

£15000 per annum: Recruitment Genius: This homecare agency is based in Beckenh...

Recruitment Genius: Sales Executives - OTE £50,000

£25000 - £50000 per annum: Recruitment Genius: Are you passionate about Custom...

Recruitment Genius: Sales Executives - OTE £50,000

£25000 - £50000 per annum: Recruitment Genius: Are you passionate about Custom...

Day In a Page

Read Next
Polish minister Rafal Trazaskowski (second from right)  

Poland is open to dialogue but EU benefits restrictions are illegal and unfair

Rafal Trzaskowski
The report will embarrass the Home Secretary, Theresa May  

Surprise, surprise: tens of thousands of illegal immigrants have 'dropped off' the Home Office’s radar

Nigel Farage
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas