Sunday, 5 April 2009

Briefing: The world in concert

Each Sunday this blog briefs the basic background information on a major international event recently in the news. This week: The G20 gathers in London.

The most highly anticipated global summit since the end of the Cold War took place in London on April 2nd, as the G20 - 19 of the world's most powerful countries, plus the EU - gathered to discuss the economic crisis. Following the previous G20 meeting in Washington last November, this week's event cemented the place of the most powerful developing countries, such as China, India, and Brazil, at the top table of global economic governance, and diminished the importance of the G8 - the club of developed democracies (plus Russia) which had hitherto acted as the preeminent forum of the global economy. The leaders at the G20 agreed to a tripling of the resources of the International Monetary Fund, measures against tax havens and strengthened global financial regulation.

On the whole, the summit must be deemed a success. By simply not collapsing in protectionist bickering it gave a certain degree of confidence that the leaders of the world will overcome divisive national interests to promote the measures the world economy needs to recover. The strengthened IMF will be able to lend vital funds to economies in acute need, reducing the likelyhood of a catastrophic series of national bankruptcies. Yet there is a sense that the G20 largely ignored the current crisis in favour of preventing future troubles and pursuing distractions.

An overhaul of financial regulation, whilst clearly necessary to avoid a repeat of the bubble and crunch of the last decade, won't aid the global economy in the short term, whilst tax havens are an annoyance to national exchequers, not an impediment to recovery. Despite facing the worst synchronised global slump since the 1930s, EU leaders blocked US and Japanese pressure for a coordinated fiscal stimulus, which would have seen governments around the world pump more money into their economies in unison. Because of the spillover effects of government spending - increasing demand for other countries' exports as well as domestic production - coordinated stimuli are generally much more effective than each government acting alone, but governments in Europe felt that they had already spent enough and feared the long term effect of further spending on their national debt. Still, with many of the details of the promises already made still to be elaborated, the G20 set the meet again in the autumn, and the economic crisis still far from over, further coordinated government action in the near future on any of these issues should not be ruled out.

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