Little Chance of Progress in Pittsburgh G-20 Nations Divided over How to Fix World Economy
In the run-up to the G-20 summit in Pittsburgh, there are very few issues that all the participating nations agree on. Member states are divided over whether to limit bankers' bonuses and how to boost growth. But one thing is certain: A German proposal to tax financial transactions doesn't stand a chance of being approved.
German Finance Minister Peer Steinbrück is known to keep a tight rein on his ministry. His nicknames among his staff -- "Supeer" and "Peerfect" -- attest to the respect his employees have for their boss. Yet with less than a week to go before Germany's general election on Sept. 27, Steinbrück's two highest-ranking civil servants, Jörg Asmussen and Werber Gatzer, are being disobedient.
The reason for this ministerial mutiny? They're angry that Steinbrück and Social Democratic Party (SPD) leader Frank-Walter Steinmeier are pushing for a global tax on all financial transactions. Steinbrück grandly announced the topic would be on the agenda of this week's G-20 summit in Pittsburgh on Sept. 24-25. And yet just a few weeks ago he was against such a tax. His ministry has also been firmly against the idea up until now.
They may belong to the same political party as their boss, but Asmussen and Gatzer clearly aren't prepared to sacrifice the Finance Ministry's traditional stance -- much to the dismay of the SPD's campaign strategists. An e-mail Asmussen sent to his colleagues in the Finance Ministry's international department is currently doing the rounds at SPD headquarters. In it he says the transaction tax is "the SPD's position, not that of the Finance Ministry," adding "Gatzer and I opposed the contents of the proposal."
Steinbrück and Steinmeier won't only be facing opposition to their plans at home. The Germans are also likely to get a very lukewarm reception to their idea at the G-20 summit. Although German Chancellor Angela Merkel has backed the proposal, the draft communiqué for the Pittsburgh meeting contains no mention of a transaction tax -- a clear indication that the suggestion has no chance of making it on to the agenda at the summit.
The omission is due to more than the fact that Britain and the United States traditionally reject such a tax. The negotiators for the world's 19 leading developed and emerging countries plus the European Union, who will be working from Tuesday onwards to lay the groundwork for their bosses' meeting later in the week, simply don't have time to add yet another item to the agenda.
The differences of opinion on the other items up for discussion, which range from future economic policy to tightening the rules on capital reserves for banks, are already too big. Indeed it's quite possible the Pittsburgh summit will end in a similar fashion to its predecessor in London six months ago, namely with a few well-chosen but nebulous soundbites that gloss over the fact that the world's most important industrialized nations are at loggerheads over how best to manage the global economy.
Just a few months ago, when they were being pummeled by the global financial crisis, the G-20 nations were united in the belief that the world's economies needed a fundamental overhaul. But with every piece of good news about the global economy and every new economic indicator that suggests things are picking up, the pressure to act diminishes and radical changes seem less and less urgent.
Hanging over all of this is the same fundamental conflict that overshadowed the London summit, namely that Britain and the US want to crank up global demand and growth while the continental Europeans are more concerned with regulating the financial markets. Unless the delegates in Pittsburgh can reach a compromise, there may be dire consequences. New trade disputes could arise which would further weaken the already poor prospects for growth.
The disagreement can be seen in the wrangling over how to set international limits on bankers' bonuses. According to German government representatives, most of the delegations have criticized the "insufficiently ambitious ideas of the US chair." To put it less diplomatically: The Americans are stonewalling.
Plans to set a concrete upper limit for variable compensation were thrown out by the negotiators months ago. After all, a million-dollar bonus is worth far more in China, India or Brazil than in Britain and the US. For this reason the Germans would ideally like to set an adjustable ceiling, for instance by capping variable remuneration at two or three times the size of an employee's fixed salary. However, Merkel and Steinbrück have garnered little international support for their idea. At a preparatory G-20 meeting, only France and the Netherlands were willing to back such a move.
Nevertheless, the G-20 wants to work towards linking compensation to "long-term value creation, not excessive risk-taking," according to a draft summit communiqué the American hosts sent to participating governments. According to the text, there should be a requirement that "a significant portion of compensation ... be deferred." The document also includes a "clawback" provision that would force bankers to pay back bonuses if the company's results later fail to meet expectations.
- Part 1: G-20 Nations Divided over How to Fix World Economy
- Part 2: A Long Way from Consensus