Washington's National Building Museum is an impressive structure. In this splendid setting, President George W. Bush stood in front of a blue and green map of the world. The members of the G-20 had just finished their summit on the global financial crisis and Bush spoke as optimistically as a foreman at a topping out ceremony. The leaders were "adapting our financial systems to the realities of the 21st century," he said. "Our nations agree that we must make the markets -- the financial markets more transparent and accountable."
TV coverage of Saturday's speech kept breaking up due to the stormy weather in Washington. News stations switched instead to cover firestorms in California. It was suitably symbolic: In these stormy times, Bush's rhetoric cannot hide the fact that the most he can do is lay the foundations for future construction.
The outgoing president quoted the summit communiqué, in which the participants committed themselves to continuing the "vigorous efforts to stabilize the financial system." Explicitly, the 20 countries advocated greater oversight of ratings agencies and stronger regulation of hedge funds. Consumer protection is to be bolstered and international financial institutions should be reformed. In addition, there should be clearer accounting standards and a review of the way managers are paid. There was no announcement of a global stimulus package, only initiatives by individual states. The declaration amounts to five pages. It is an impressive list. However, the many sentences describe principles rather than concrete measures.
The summit merely showed that the leaders have understood the roots of the crisis. They even devote a paragraph to explain how there was no "adequate appreciation" of the risks the financial markets posed.
The real message from Washington, though, was the following: We understand the gravity of the situation, but real action will have to wait. It will have to wait until one of the primary architects of any new financial structure takes office: US President-elect Barack Obama.
By the time the next G-20 summit rolls around on April 30, the new president will be in office. In the meantime, G-20 delegations are to circulate detailed proposals by March 31 in preparation for that summit, which may be held in London.
An influx of new blood and leadership is exactly what this group of industrialized and developing countries needs. This time around, it was primarily a meeting of either outgoing or politically weakened statesmen and women. Bush is a lame duck. A number of European leaders had just spent the week announcing that their economies had entered a recession. Russia has lost political influence as a result of plunging oil prices. And none of them saw the crisis coming.
Nevertheless, delegation members raved about the "historic meeting." Not, as it turned out, because of the principles that were under discussion but rather because of the leaders it brought together.
Never before had the G-20 come together at the head-of-state or head-of-government level. Rapidly growing countries like Brazil, India and China -- a trio which, at the moment, is responsible for the fact that the global economy is growing at all -- were at the table. Indeed, the fact that this enlarged G-8 is now planning on meeting more regularly may be the most important outcome of the weekend summit.
Other results still need to be negotiated -- like the desired reforms of the International Monetary Fund and the World Bank, for example. The leaders of these two institutions were given the red carpet treatment this weekend. On Friday evening, they were taken by limousine for a dinner with President Bush in the White House. They were also allowed to speak first at the summit -- even before any of the gathered world leaders.
A New Role for the IMF?
But what exactly their future roles will look like remained unclear even after the summit. Many would like the IMF and World Bank to become a kind of global financial watchdog. But the hurdles are high.
"The central question is how one can provide China and India with a greater voice within the IMF," said Mauricio Cardénas, an expert with the Brookings Institution. Eswar Prasad of Cornell University agrees. "To become an effective institution, the IMF needs more legitimacy. It needs to be seen as a mediator, not as a tool of the US and other industrialized countries." In particular need of change is the way in which the top jobs at the World Bank and the IMF are doled out. Traditionally, they have been reserved for Europeans and Americans.
But are the Western industrialized nations really prepared for such comprehensive reforms? In an interview given to the Süddeutsche Zeitung newspaper in the run-up to the summit, German Chancellor Angela Merkel appeared open-minded. But sources participating in the summit were more cautious. "The emerging countries have become a lot more self-confident," one source said. "The process of coordination is going to become more difficult."
At the end of the day, it's a question of money. The main call from experts is for an increase in the IMF's funding for disbursement of crisis aid. "The IMF budget isn't big enough to handle the current crisis," said Lex Rieffel of the Brookings Institution think tank. He said billions in cash injections are needed for the international institution -- money that, at the moment, could only be raised by countries like China, Japan or Saudi Arabia, countries that will demand a greater say in exchange for their help.
Obama Will Resist Calls for Global Regulator
Indeed, there is plenty of fodder for debate at the next summit in London as well as within the incoming Obama administration. "He's listening very attentively to everything right now," said an insider on the German delegation. During the summit, Obama's advisors met with representatives of more than a dozen countries. Former Secretary of State Madeleine Albright and former Republican Congressman Jim Leach, who represented the president-elect at the summit, are now sharing the outcome of those conversations with Obama.
On Saturday, President-elect Obama discussed the financial crisis in a radio address that emphasized the need for a US economic stimulus package. But Obama must first name his treasury secretary. Current favourites for the job include Larry Summers, who held the post under Clinton, and Timothy Geithner, president of the Federal Reserve Bank in New York.
Many observers believe that Obama will be more open-minded about regulations that strengthen international institutions or that put an end to tax havens. But the incoming president will likely resist ambitious plans for a global financial regulator. "Even under a President Obama, the US government would not accept any kind of global supervisory authority for the financial markets," said Brad Setser of the Council on Foreign Relations. America's commitment to free trade and free markets crosses both party lines.
Shortly before his departure Bush reiterated those commitments once again in comments possibly aimed at his successor. "Those of you who have followed my career know that I'm a free market person," he said in a speech. In the end, Bush saw to it that the summit declaration included clear commitments to free trade, free markets and economic growth.
But US commentators heard another message. The most important one of the day, American editorialists gibed, was the last word of Bush's speech: "Goodbye."