G20: Leaders agree to disagree in search of lasting recovery

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World leaders agreed on 27 June in Toronto to take different paths towards assuring lasting growth and making their banking systems safer, a reflection of the uneven and fragile economic recovery in many countries.

The Group of 20 rich and developing economies tried to balance their contrasting priorities by pledging to halve budget deficits by 2013 without stunting growth, and to clamp down on risky bank behaviour without choking off lending.

They left room for countries to move at their own pace and adopt "differentiated and tailored" policies that match national economic or political priorities, a sharp reversal from the unity of the previous three crisis-era G20 summits.

"Our challenges are as diverse as our nations," said US President Barack Obama. "But together we represent some 85% of the global economy, and we have forged a coordinated response to the worst global economic crisis of our time."

The G20 allowed each country space to decide how to proceed with controversial provisions such as taxing banks to recoup bailout costs and implementing tougher bank capital rules.

It also steered clear of confrontation with China by making no specific mention of the yuan currency, even though Beijing has just allowed it to resume its rise against the dollar.

The G20, which includes emerging economic powers as well as the developed economies where the economic trouble started, united last year to throw trillions of dollars into the battle against recession.

But that unity has begun to fray as countries emerge from crisis at different speeds and with different policy needs. Emerging Asian economies such as China have come roaring back, while the US recovery remains tepid and Europe lags behind.

"The G20 is fragmented as it transitions out of its role as a crisis-fighting committee," said Tom Bernes, vice-president at the Centre for International Governance Innovation in Toronto.

"While G20 leaders agree on the need for stronger financial regulation, actual details continue to be vague and lacking a solid deadline […] There is a huge unfinished agenda."

Obama acknowledged talk of G20 divisions but said the meetings showed these countries could come together and embrace shared interests. "We can bridge our differences," he said.

Europe claims victory

The Toronto meeting was billed as a final check-up before November's G20 summit in Seoul. That meeting is the deadline for leaders to agree policies on issues including bank capital rules, financial regulation and voting rights at the International Monetary Fund.

Since G20 leaders last met in Pittsburgh in September, Greece's debt troubles have shifted the focus toward damaged public finances. Britain and Germany have joined Greece, Spain, Italy and other smaller European countries in putting forward plans to reduce spending.

The United States has preached patience, cautioning that the sudden removal of economic supports could tank the economy. European leaders have countered that fixing finances will improve confidence, and that is essential for growth.

European officials took the G20's commitment to cut deficits as a clear sign that the rest of the world had come around to Europe's point of view.

"The EU came to Toronto with a clear agenda. The summit's result reflects widespread convergence around Europe's approach," European Union officials said in a statement.

Halving deficits looks easily achievable, considering that US President Barack Obama has already pledged to do so and Europe sees the target as a bare minimum.

Heavily indebted Japan appears to be the one major advanced economy that might struggle to hit the deficit mark. In the communiqué, the G20 acknowledged the "circumstances of Japan" and welcomed its plans to shore up finances.

Stabilising debt as a percentage of total output within six years may be harder. Obama's budget forecasts show the debt ratio rising at least through 2015, and most advanced Western economies face rising costs as their populations age.

(EURACTIV with Reuters.)

The Permanent Representative of the Russian Federation to the EU Vladimir Chizhov:

On Russia-Ukraine rapprochement:

Ukranian interests could be represented by Russia at the G8 summit, Ambassador Chizhov told journalists in Brussels on 25 June.

“Russia does not intend to do anything in the name of Ukraine without it asking”, he added.

Last month, Ukrainian foreign minister Kostyantyn Hryshchenko’s pleaded before the country’s Parliament that Russian representation at international summits would be “in Ukraine’s interests”.

As Russia is opposed to the introduction of a bank levy, Chizhov described the idea as “of course proposed by countries whose bank systems suffered during the crisis”, adding that Russia had in contrast been well prepared for such an event. The Russian diplomat also stated that he “expected to see differences in opinion” regarding discussions over the country’s energy sector.

IMF Managing director Dominique Strauss-Kahn

On G20 target to halve deficits by 2013:

"Talking about halving the deficits is oversimplifying the problem because it differs from one country to another. I am more interested in the fact that countries do implement the right measures."

Japanese Prime Minister Naoto Kan:

 On the Chinese currency:

"China has already set out to allow some flexibility. Our finance minister has welcomed this and the United States has also made similar remarks.

"There was no discussion at this meeting that mainly focused on the yuan. I think it was because this issue has turned a corner."

On bank tax:

"The bank tax was in focus before the meeting, but it was not a major point of discussion at this meeting. In preparation for the meeting, European countries were interested in the idea, but Japan and the United States were not necessarily in favour of this form of tax.

"It was mentioned, but there was no deep discussion on the issue."

British Prime Minister David Cameron:

On the WTO's Doha round of trade talks:

"Where we are at the moment, we are stuck, we are not progressing. If we stay where we are, I don't think we are going to make it ... if we can find a new dynamic, we can find a way to get these talks going."

Russian President Dmitry Medvedev:

When asked about CIA report that says Iran is close to nuclear weapons:

"As to this information -- it needs to be checked. In any case, such information always is a concern because today the international community does not recognize the Iranian nuclear program as transparent. And that is why the (United Nations Security Council) resolution appeared. If it is shown that what the American special services say is true, then it will of course make the situation more tense, and I do not exclude that this question would have to be looked at additionally."

On the International Monetary Fund:

"Reform of the IMF is continuing, but it needs to be taken to the finish."

On Kyrgyzstan:

"I don't really understand how a parliamentary republic would look and work in Kyrgyzstan. Will this not help those with extremist views to power?"

"This concerns me. ... "In its current state there are a host of scenarios for Kyrgyzstan, including the most unpleasant scenario -- going up to the collapse of the state. To prevent such a scenario, it needs to have strong and well organised authorities."

French President Nicolas Sarkozy:

On bank tax proposal:

"Europe must show the path for bank tax. We will show the path and we will do it. ... It's difficult to have everybody go in the same direction. At least it (the concept) has been accepted."

On plan to halve deficits:

"I do not think the word target word has been used ... it would be less than the specific commitments that we made with our European partners, since these commitments we have made 3 percent (of GDP) in 2013 and percent in 2011. Some wanted it to be stronger, others wanted it to be less severe, we found that this compromise is pragmatic."

"We are not for example going to ask Spain, Greece and Portugal to finance major support plans ... the same way we will not ask China to massively reduce those costs is a commitment by each member, but this is not a statement of the G20. It's voluntary by country each takes the commitment to conduct a sustainability plan, but not a collective order of the G20, for example, Japan does not adhere to this objective, which is its right."

Canadian Prime Minister Stephen Harper, on China currency move:

"We want to applaud a number of recent actions that are positive ... first of all the budget of the United Kingdom, which strongly tackled the British deficit, Chinese flexibility on exchange rates, and the new U.S. law on financial sector reform."

"The declaration has an important commitment to greater exchange rate flexibility going forward. And as we know, the Chinese specifically have made that commitment to the world coming into and at this summit. And I'm confident that the Chinese will fulfill that commitment. And as we all know, when you make commitments like this on the world stage you will be held accountable for them."

Chinese President Hu Jintao:

On global economic recovery and exiting stimulus steps:

"With the common efforts of G20 members and the international community, the world economy is gradually recovering, but the foundations of the recovery are still not solid, the process is not balanced and there are still many uncertainties."

"All this shows that the deeper impacts of the financial crisis have still not been surmounted, and systemic and structural risks to the world economy remain very grave."

"We must act cautiously concerning the timing, pace and strength of exits from economic stimulus policies."

On China's goals: "Our top priority is to ensure strong growth. Our long-term objective is to enable sustainable growth. Balancing growth by adjusting our economic structure is an objective requirement."

"Since the beginning of this year, we have worked to maintain the consistency and stability of our economic policies, while also stressing the need to make our policies more targeted and flexible according to evolving circumstances."

"Since the start of the year, China's trade surplus has continued to fall substantially. The trend towards a balanced current account has picked up speed. The momentum towards balanced economic development has increased."

German Chancellor Angela Merkel:

On G20 agreement to halve public sector deficits by 2013 and stabilize government debt: "This will be part of the final communique."

Frankly spoken, this is more than I expected."

"This is very ambitious. That all industrial countries have accepted this goal is a success."

-- On dealing with systemic important financial institutions in trouble: "We have done important things here, how to solve this problem"

"We will decide in Seoul in autumn on a procedure for that issue."

Andrei Bovarev, Russia’s deputy ‘sherpa’:

On omitting a yuan reference in communique: "The majority of the members of the G20 welcomed the plans of the government of China on introducing a floating yuan rate. But in the final communiqué this phrase will not be in there at the request of the Chinese side."

Canadian, Brazilian and Australian objections to a bank levy have been known since the previous G20 talks in Pittsburgh, USA.

European Commission President José Manuel Barroso said he was disappointed by the "slow rate of progress" at the Pittsburgh talks, which primarily produced a consensus on "timely exit strategies" (EURACTIV 28/09/09).

Since then, the EU and the US have been devising ways to prevent bankers from taking undue risks in the sector, like clamping down on pay and setting aside capital for future insolvencies. The June 2010 G20 summit had been heralded as D-day for some of these proposals.

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