A Summit at the Abyss Can the G-20 Save the World?
All eyes are on London this week as leaders from the world's leading economies gather to find a way out of the growing financial crisis. But tensions are growing between the US, Europe and China, and a common course has so far proven elusive.
It is an important test for the new US president. During his campaign, Barack Obama promised fundamental change, pledged to steer a determined course in combating the global economic crisis and said he would seek greater international cooperation. It was, he said, to be a "New Deal."
This week, an important international summit meeting is about to begin, and the time has come for Obama to demonstrate that he can deliver on his promises. At their meeting in London, the representatives of the world's leading industrialized nations will discuss the global recession, a financial industry in disarray and a sharp drop in world trade.
At issue is the steepest economic downturn in decades, and everyone is waiting to see what the new man in Washington will do. Will he be responsive to the Europeans' insistence on a new global financial order? Or will he focus instead on stimulating growth in his own country?
The president who determined the fate of the London Monetary and Economic Conference in 1933, at the height of the world economic crisis, was Franklin D. Roosevelt. His eventual decision to distance himself from the conference aggravated the global trade wars and deepened the Great Depression.
Seventy-six years later, another international crisis conference is now set to begin. Once again, banks have collapsed and millions of people have become unemployed. In the wake of sharp declines in the securities markets and a sell-off in the financial industry, the world faces the prospect of widespread hardship. As the representatives of the leading nations meet in London once again, all eyes are focused on the American president.
Will National Interests Win Out?
Will Barack Obama bring success to the summit or will he focus primarily on national interests?
Most of the heads of state and government of the so-called Group of 20, or G-20, will arrive in London on Tuesday of this week. They will be accompanied by their finance ministers and the heads of their central banks, and they will come from Europe's powerful industrialized nations, from Brazil and Australia, from Russia and China, as well as from South Africa, Indonesia and India. When it comes to saving the world, it is important that all major groups and regions are represented.
The conference will be held at the ExCel Conference Center in the Docklands, the former site of the London docks. Beginning at 8 a.m., the national leaders and their financial experts will attend separate working breakfasts, following by three hours of plenary sessions. There will be a "working lunch," more plenary sessions in the afternoon and, at 4 p.m., a press conference.
At that point, the heads of state and their delegations, each numbering about 20 -- guarded and protected by at least 2,500 police officers -- will tell about 2,500 accredited journalists, and the world, what conclusions, if any, they have reached.
Can this illustrious group fix the world? Will it manage, in a single day, to solve the problems associated with risk that has been building for years? Who is going to save capitalism? What needs to be done? And by whom?
There are no longer any easy answers. There are only difficult questions brought on by a crisis that ballooned to such massive proportions that it changed the world, within an extraordinarily short amount of time, in ways that no one would have thought possible.
Serious Conflict Emerging
Since the American real estate market collapsed and the international credit markets plunged into an unprecedented crisis, financial policy, among other things, has been in disaster mode. Governments have saved one bank after another from failure, flooded the markets with cheap money and assembled economic stimulus packages worth billions. But now, just as they are about to come together in London to coordinate the next steps, serious conflicts are emerging.
Despite the fact that we now have a globalized economy, the world still lacks a global policy. And, as was the case 76 years ago, there are already gaping differences among the approaches favored by the major blocs.
The new US administration wants to combat the crisis with government stimulus programs, at a cost of trillions, paid for with new debt. We must "fill this enormous hole in global demand," says Obama.
German Chancellor Angela Merkel, on the other hand, is strongly opposed to increasing government debt with additional economic stimulus programs. She favors restraint and aims to convince the other heads of state and government of the benefits of a legal barrier to excessive debt. As she said last week, she would like to "transfer" this idea "to the rest of the world."
Threat to Wall Street
The two leading Western economic powers disagree on another issue as well. To avert another financial crisis in the future, the Germans want to see tighter controls imposed on international financial markets. The United States, for its part, will ultimately refuse to accept any regulation that will pose a threat to Wall Street.
The conference is also burdened by the fragile personal relationship between the two protagonists. Merkel is dealing with a president with whom she has not yet been able to connect. Although the two leaders agreed last week to a joint approach to fixing the problems of carmaker General Motors and its German subsidiary Opel, they did so by videoconference. Merkel was not willing to travel to Washington for face-to-face talks with Obama, even though an acceptable date had already been found.
European politicians normally clamor for the opportunity to pay their first visit to a new US president. An early date is seen as a mark of prestige. But Merkel apparently saw no benefit in spending 18 hours in the air to meet with Obama for an hour.
For Merkel, the chairwoman of the conservative Christian Democratic Union (CDU), which has strong trans-Atlantic ties, this is a clear sign of guardedness. Former Foreign Minister Joschka Fischer is already warning against a new "trans-Atlantic drift."
This does not bode well for the London summit, which British Prime Minister Brown would like to turn into a major show of handshakes and kisses on the cheek. To preserve the peace, the hosts are trying to gloss over the conflicts with a show full of harmony, the roles clearly defined: Obama as the new center of world politics; Merkel as the valiant soldier fighting the powerful on Wall Street; and Brown as the successful summit diplomat.
Coming to an End
But others are also seeking to stake out their territory. Chinese Prime Minister Wen Jiabao has already suggested, ahead of the conference, that the era of the dollar as the world's key currency could be coming to an end.
And Brazil's socialist president, Lula da Silva, chimed in with a comment that was as racist as it was timely: "It was a crisis caused and encouraged by the irrational behavior of white people with blue eyes, who before the crisis appeared to know everything, but are now showing that they know nothing."
In the end, the summit, though unlikely to put an end to the current crisis, could very well make it easier to diagnose future crises before they begin. There will be a few compromises on wording, as is to be expected at an international summit meeting. The draft of the final communiqué, which the British sent to the capitals of the participating countries last week, offers a foretaste of the sort of crisis prose to be expected in London this week:
"We are determined to restore growth now, resist protectionism and reform our markets and our institutions for the future. We believe that an open world economy, based on market principles, effective regulation and strong global institutions, will ensure a sustainable globalisation with rising prosperity for all."
As lofty as these words are, they merely mask rather than solve the conflicts at hand. Nevertheless, the Downing Street authors of the communiqué did address the core issues in the remainder of the document.
Supported by Obama's new administration in Washington, they intend to stimulate worldwide growth, using all available tools and sparing no expense. For instance, the communiqué continues, the participating countries will be asked to stimulate the ailing economy with $2 trillion (1.52 trillion). That figure, however, is still in brackets, a clear sign that it has yet to be settled on and could end up being bigger.
This sort of stimulus would "increase output by 2 percentage points and employment by 19 million," Brown's experts write. They even want to incorporate a concrete growth target for the world economy by the end of 2010 into the communiqué, as if optimism could be delineated. A specific number will be inserted during the final negotiations.
- Part 1: Can the G-20 Save the World?
- Part 2: An Accelerating Crisis
- Part 3: Back to the Bad Old Days?
- Part 4: A Developing Disaster in the Developing World