Economists on the G-20 'I Doubt the US Is Serious'

The US real estate crisis has thrown the entire global financial system into the abyss. Now the G-20 will try to agree to new control mechanisms to ensure the disaster isn't repeated. Top economists, including Nobel Prize recipients, tell SPIEGEL what they expect from the leaders gathered.
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Kenneth Rogoff is the former chief economist at the International Monetary Fund

"Setting up an agenda leading to the creation of a new global financial regulator or, at least, a new treaty governing global financial regulation, is the single most important agenda item the leaders could confront at the summit. Absent a vision of what kind of financial system we want to see emerge from the ashes of the current mess, it is hard to see how we can proceed with an effective workout of the many bankrupt banks around the world today.

"The US emphasis on a global fiscal stimulus creates an unfortunate and unnecessary tension. First, European governments have higher taxes and more social guarantees, so that there is already a large automatic fiscal stimulus when output falls. More fundamentally, European leaders rightly question the cost-benefit calculation of spending wildly to fight the recession. Ultimately the debts must be repaid, and many European countries already are facing grim fiscal calculations between the prospective costs of bailing out their own financial system (as well as weaker states in Europe), together with adverse demographics.

"President Obama should downplay this issue. The US is in no position to be lecturing anyone on macroeconomic policy right now. Of course the leaders must take steps to ensure that the world’s poor do not become collateral damage to the financial crisis. The head of the UN is quite right to worry about a collapse of aid in the face of growing fiscal constraints.

"Perhaps most importantly, the leaders should agree not to engage in either trade or financial protectionism, such as the US's recent 'buy American' restrictions on its fiscal stimulus. Trade protectionism, which seemed like a far off concern just a couple years ago, is looming as a major threat as the global recession deepens."

Foto: AP
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Joseph Stiglitz is the 2001 recipient of the Nobel Prize for Economics

"The American government does speak a lot about stringent regulation of the financial markets. I doubt that it's serious about it though. The US has always been a master at changing a supposed regulation measure into further deregulation.

"We have to reorganize our bailout system for the financial sector. For one thing, any bank that actually lends should get money from the government, and the government must also accept the consequences when banks become insolvent. But as a countermeasure, these institutions have to be nationalized. The government can close those business segments that have nothing to do with lending and make sure the banks no longer organize stock deals that they themselves do not understand.

"I would also propose that countries with a positive trade balance should stream part of their surplus to the International Monetary Fund."

You can read the full-length interview  from which these quotes are excerpted on SPIEGEL ONLINE.

Foto: AP
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Robert Solow, is the American recipient of the 1987 Nobel Prize for Economics

"The most urgent need facing the G–20 is to bring the worldwide recession to an end, and to start a recovery. The deeper the recession becomes, the harder it will be to stop, and the worse off the poor countries of the world will be.

"I think there is no alternative to a coordinated expansionary fiscal policy, with no major exceptions, and no free-riders. The soothing idea that merely restoring order to the banking system will automatically lead to quick recovery seems implausible. Financial reform has to be high on the agenda, but definitely not as a substitute for fiscal action."

Foto: AP
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Harold James is an economic historian at Princeton University

"The fundamental problem the London G-20 meeting faces is that we are facing a profound crisis in an internationally interconnected and very complex economy, but that almost all the answers are national answers. The focus on the conventional nation-state follows from the high cost of crisis measures, which can only be covered by national governments and their taxpayers. There are very high expectations of what internationally coordinated action could do, but almost all of them are likely to be disappointed.

"At the meeting, it is essential to make progress in those areas where there is an urgent need for action, and not to waste time debating fundamental differences of approach and of philosophy (such as stances on fiscal stimulus or international financial regulation and supervision). But the meeting should lay down a timetable for tackling more deep-seated but less immediately urgent issues. Timetables create commitments; without timetables, not much happens.

"It is most urgent to have a mechanism to respond adequately to emerging market crises. Many vulnerable emerging markets are in politically sensitive areas and economic collapse risks creating major geopolitical upheavals.

"The most obvious solution is to expand the resources of the IMF so that it is capable of implementing stabilization and reform packages. Since this is a measure that is needed quickly, it would be too complex and cumbersome to embark on a quota increase. Instead, the resources should be obtained by borrowing from major economies, including some of the emerging market economies. In the end, those countries that contribute large-scale resources will need to be compensated through increased influence, in the form of larger voting shares."

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Heiner Flassbeck is the director of globalization for the UN Conference on Trade and Development.

"In terms of regulations, no progress will be made at the summit. The Anglo-Saxon countries don't want the necessary structural changes for their finance centers and they aren't going far enough to meet the other demands needed in order to prevent other speculation bubbles in the global casino in the future. The most important result has to be that they agree to immediately stop speculation in key areas -- in raw materials, currencies and private equity.

"In addition, a provisional new monetary order is needed to push the IMF into changing its policy regime under which countries that are in financial trouble through no fault of their own have been forced to carry out pro-cyclical measures that are exacerbating the crisis."

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Michael Burda is an American economist at Berlin's Humboldt University

"The summit cannot end with platitudes. The world needs a coordinated response to the crisis, and that must include fiscal policies.

"It also requires a new financial architecture -- otherwise the re-nationalization of capital markets will cause considerable damage. That should include classifying hedge funds and financial institutions, pro-cyclical reserves at financial institutions for their business, establishing new, competing ratings agencies at an international level that are sponsored by the G-20 nations as well as stricter disclosure and capital requirements in order to obtain the best credit rating.

"What is likely to be missing at the summit, however, is a condemnation of the protectionism that is already beginning to creep in everywhere."

Foto: DPA
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These quotes all originate from the cover story in the current issue of SPIEGEL: "A Summit at the Abyss: Can the G-20 Save the World? "

Foto: Illustration Dan Adel für den SPIEGEL
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