The first rule in a crisis is focus. That should be the guiding principle for world leaders as they meet in Washington today for a summit of G20 countries. Those present need to concentrate on two immediate tasks at hand: the need to restore some confidence to what is still a grossly dysfunctional global finance system and the need to soften the impact of the global downturn.
Gordon Brown is calling for agreement on a co-ordinated fiscal demand stimulus. It would, of course, be most convenient for a Prime Minister who has over-borrowed for some time and who now plans to do more of the same to have the imprimatur of an international summit to hand. But, putting the politics aside for one moment, the Prime Minister's call for international co-ordination for stimulus efforts makes economic sense.
Co-ordination will maximise the impact of these measures on international consumer demand. It will also minimise the risk that any country that engages in emergency tax cuts or spending increases will suffer a currency rout by investors. There will be a sense of the world jumping together into the unknown, rather than going nervously one at a time.
Those nations with ample capital reserves such as China and the Gulf states also need to be prevailed upon to channel more funds into the coffers of the International Monetary Fund so it can credibly pledge more cash to any economy coming under pressure. This is in no appeal for charity. It is in the direct economic interests of those nations with accumulated surpluses to ensure they have customers for their energy and manufacturing exports. If the G20 can accomplish these few tasks then this meeting should achieve some immediate and tangible good (even if many of those smaller nations most at risk from the financial crisis will not be present in Washington).
But grand ideas which have been in circulation for several weeks of creating a "new Bretton Woods" in Washington today should be put on one side. Reform of the supervisory apparatus of global finance is certainly necessary. The lesson of the past year is that the global banking industry has grown too vast and destabilising to be left to look after itself. Some sort of beefed-up international supervisory regime will need to keep it on a tighter leash in future.
But that raises knotty questions. What form will this regulator take? What powers will it have? Whom will it answer to? The European delegation in Washington appears to have some detailed proposals. The US, with the lame-duck President George Bush still at the vanguard, is instinctively wary. The concern of the large emerging economies of China, India and Brazil is to ensure they are adequately represented on any new regulatory authorities that emerge. There is great potential for disagreement here. It would be better to avoid the argument.
The plain fact is that there is no consensus and there is no time to hammer out the many inevitable compromises necessary to achieve a deal. Furthermore, Barack Obama will not be in personal attendance at this summit. The idea that any significant progress can be made on a new supervisory structure for global finance in the absence of the man who will be President of the United States in a little over two months is plain fanciful.
The best that world leaders can do is to set up working groups on the thornier questions of regulation. But no time ought to be spent getting bogged down in detail. Let the focus be on damage limitation, rather than re-ordering the world.Reuse content