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The World from Berlin

Financial Summit an 'Important Step'

IMF loans for Pakistan and Iceland. More money likely needed to help ailing developing economies. There are plenty of signs that the global financial crisis is far from over. But German commentators say that the summit in Washington took important initial steps toward a solution.

US President George W. Bush called the weekend summit of 20 state and government leaders from the world's leading economies "historic." And once the event had come to an end, it became clear that, even as there is plenty of work left to be done, he may end up being right.

The summit, hyped by the media beforehand as marking the first step on the road toward redesigning the world's financial architecture, resulted in numerous expressions of goodwill and unity. Surprisingly, though, there were also a few concrete results. G-20 leaders agreed to refrain from raising trade barriers for the next year and to complete the Doha round of trade talks -- which are to establish a new global trade regime -- by the end of December. Furthermore, a number of steps, including many relating to accounting transparency and regulation, are to be taken by the end of March. Additional summits are to follow.

And there is plenty of work left to be done, particularly as the financial crisis continues to spread through the developing world. Over the weekend, Pakistan became the latest country to require assistance, deciding to borrow $7.6 billion from the International Monetary Fund to shore up its economy. Many are concerned that conditions imposed by the IMF could hurt ordinary Pakistanis, potentially leading to a public backlash, but the IMF assured that the deal would protect the poor.

In addition to Pakistan, there are a number of other developing nations that may end up needing assistance from the IMF, prompting its director Dominique Strauss-Kahn to tell the BBC that the bank needed an additional €100 billion over the next six months.

Iceland, too, stands to receive $2 billion from the IMF now that it has reached a deal with European countries regarding money deposited by Europeans in Icelandic banks that have now failed. Both Great Britain and the Netherlands had reportedly been blocking the loan until Iceland agreed to repay money to foreign depositors who lost their savings in Icesave accounts belonging to failed banking giant Landsbanki. About 300,000 Britons had deposited some four billion pounds with Icesave. The Netherlands agreed to loan €1.3 billion to Iceland so that Dutch savers could be reimbursed for their Icesave losses.

Iceland has been hit especially hard by the crisis and has said it will need billions more in addition to the IMF loan. Now that differences with Britain and Holland have been set aside, other pending loans from Nordic countries will now likely be paid out. In addition, Iceland Prime Minister Geir Haarde said on Friday that the country would reconsider whether it should join the European Union. The crisis has led to skyrocketing support for such a move in Iceland, up from a pre-crisis 50 percent approval to the current level of near 70 percent.

German commentators on Monday take a closer look at the G-20 summit in Washington over the weekend and at what the future could hold.

The center-right daily Frankfurter Allgemeine Zeitung writes on Monday:

"The first step on the road to a new global financial system has been taken. Important established and developing industrial countries reached agreement in Washington on the principles of an improved framework for the financial markets. That is no small success. Nobody should have been expecting that a detailed list of rules applicable in markets all over the world would come out of the summit."

"Such a result would also not have been desirable. It is not possible to put together a plan to stabilize the global economy and financial markets for the 21st century in just one day. The problems are too complex to brush aside with a few sentences. But in the tenets agreed on by the group, one can find important indications of the lessons learned as a result of the financial crisis …."

The financial daily Handelsblatt writes:

"After this summit, an enormous amount of good will and patience is needed -- not conceit. The leaders who assembled in Washington D.C. took on a huge project. And against all expectations, they managed to agree on a package of intentions deserving of respect. Should the core elements of that package -- regulation, coordinated economic stimulus and a farewell to protectionism -- be implemented, then the crisis will have done some good: namely that of triggering advances that never would have been agreed to in more normal economic times. The real challenge is now that of maintaining the momentum and translating the intentions into concrete policy. And that may turn out to be the much greater hurdle."

"Following this summit, it is likely that the G-7 format has reached its end. The world has become much too complicated for problems to be solved at the kitchen table. And the summit in Washington showed that 20 countries can indeed come to agreement. Thus, it is hard to imagine that the seven leading industrialized nations will now return to business as usual. Given the crisis and now the summit, nothing is as it was before. The political consequences will be felt for some time -- and could even result in the reform of other aged structures. The UN Security Council for example. Given the summit in Washington, the council suddenly looks hopelessly antiquated."

The Financial Times Deutschland writes:

"When compared with the normal papers produced at international summits, the Washington paper stands out in that it is much more detailed than normal. It includes a concrete timeline according to which finance ministers from the G-20 countries will develop and circulate proposals for a financial oversight system. It also includes a commitment to steer clear of protectionist reactions to the crisis -- which leads one to hope that the world's old and new economic powers have learned the lessons of the global financial crisis."

"Such an agreement among 20 countries normally requires months of effort, if not years. The speed with which the current agreement was concluded isn't just cause for hope. It also shows just how deep the crisis really is and how immense the pressure is to act now."

The center-left Süddeutsche Zeitung writes:

"What was clearly missing from the summit in Washington was, among other things, a clear 'mea culpa.' The summit communiqué admitted that 'in some advanced countries,' regulators and supervisors did not 'adequately appreciate and address the risks building up in financial markets.' For the global public, though, it would have been refreshing had the summit called a spade a spade. Like this, for example: 'The United States triggered the crisis by allowing incomprehensible excesses in its banking system. The other industrialized countries contributed by not even attempting to understand and draw conclusions from the new developments on the financial markets.' Such an admission of guilt would have made it easier for developing countries, most of which made zero or minimal contribution to the financial crisis, to take on their new responsibility for the global economy."

"We shouldn't kid ourselves. When it comes to the details, there are huge trans-Atlantic differences. That becomes clear when one compares the way in which different delegations have sold the summit to their populations. In Europe, it was often said that the financial markets now require a foolproof monitoring system. In the United States, however, one spoke more generally of wanting to 'help' the world economy. One can't ignore the danger of a blockade. On one side stands French President Nicolas Sarkozy with his high-minded plans for a global financial watchdog. On the other side are the Americans (and likely the British as well) who are concerned about their financial centers in New York and London and will thus likely try to limit any regulation. In this debate, though, both sides are wrong. On the one hand, it would be grotesque were one only to make a couple of miniature repairs to the global financial system. On the other, given the numerous failures of existing oversight structures, it seems illogical to seek salvation in a super-bureaucracy."

-- Charles Hawley; 1:15 p.m. CET