Sunday, October 26, 2014

World Leaders Agree on Global Response

Leaders of the Group of 20 nations on Thursday announced a host of measures they said should help lift the global economy — but deferred many of the trickiest decisions or forwarded them to international institutions unaccustomed to the responsibility.

Facing the worst economic crisis in decades – and one they say hasn’t hit bottom — the leaders concluded a summit by turning especially to the International Monetary Fund to warn of impending problems and assess whether G-20 countries are keeping their promises on regulation and fiscal stimulus to ease the impact of the recession.

Those are tasks beyond the IMF’s traditional role, and may require the fund to show more spine in dealing with its largest members than it has managed in the past. The leaders agreed to quadruple the financial capacity of the IMF with a $1 trillion commitment.

The G-20 also worked to clamp down on tax havens and to tighten financial regulations, bringing large hedge funds and financial institutions into the global regulatory net. The G-20 wants to register hedge funds with domestic regulators, disclose how much they have borrowed and to make sure there is effective oversight, even if the fund operates across borders.

The measures may ease some pain from the economic crisis. But many declarations were of principles that have to be followed up — some at another G-20 meeting set for later this year.

“Our problems are not going to be solved in one meeting; they are not going to be solved in two meetings,” said President Barack Obama, at his first high-level international meeting.

A Communiqué issued by the group at the end of the meeting didn’t specifically tackle the problems that many say are at the root of today’s crisis, such as the broken banking systems. U.K. Prime Minister Gordon Brown said the G-20 had figured out a way to deal with toxic bank assets. Yet in the communiqué, the leaders said they would “address decisively” the problem of impaired assets, but didn’t spell out how.

The chance for more sweeping progress here was sidelined by weeks of differences among key players. Calls by the U.S. and the U.K. for more financial stimulus to restart economies collided with European calls — primarily from France and Germany — for stricter regulation of the global financial system.

The group made no commitment to a specific stimulus target that the U.S. supported. Instead, the leaders made a vague commitment to “deliver the scale of sustained fiscal effort necessary to restore growth” and said the world was in the middle of a giant monetary and fiscal stimulus valued at $5 trillion.

Nonetheless, by Thursday night, the erstwhile factions — Messrs. Obama and Brown as well as French President Nicolas Sarkozy and German Chancellor Angela Merkel — painted a picture of progress and bridged their differences.

“This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable,” Mr. Brown said.

Other international institutions were assigned enforcement duties. The Financial Services Board — an expanded version of the Swiss-based Financial Stability Forum, a group of international regulators — is expected to gain more clout as it tries to coordinate crisis-response SWAT teams of regulators from many countries. The World Trade Organization is being asked to review whether G-20 members break pledges to refrain from protectionism.

In the Communiqué on Thursday, the leaders said the new Financial Services Board would work with the IMF to signal “early warnings” of economic and financial risks.

“There has been a strengthening of the mandate” of the group, said Mario Draghi, the FSF head and a former Goldman Sachs Group Inc. banker who is governor of the Bank of Italy.

It’s far from clear that the international organizations have the muscle — or will — to carry out the tougher mandates. For instance, the IMF in the spring of 2008 urged the U.S. to take care of its toxic-asset program and handed the U.S. Treasury a detailed plan for doing so, said U.S. and Treasury officials. The U.S. ignored the plan.

Disagreements among the G-20 leaders continued until the last minute. According to White House officials, in an account supported by officials from other countries, Mr. Obama was crucial in sealing the deal on the last remaining stumbling block: publishing tax-haven names.

Mr. Sarkozy insisted that the G-20 strongly endorse a list of tax havens that aren’t in compliance with the organization’s rules on transparency, and that the list be drawn up by the Organization for Economic Cooperation and Development. Chinese President Hu Jintao objected, especially to the role of the OECD. China isn’t an OECD member.

The back-and-forth on the matter began Thursday morning and stretched into the afternoon, a senior Obama administration official said. The opposing sides returned to it three times.

Finally, Mr. Obama took Mr. Sarkozy aside and suggested compromise language. The G-20 wouldn’t order up a blacklist. Instead, its Communiqué would cite a list the OECD had published, on its own, under its own initiative. Mr. Sarkozy agreed.

Mr. Obama then sent an aide, Michael Froman, to the Chinese delegation. Mr. Froman suggested a direct conversation between Messrs. Obama and Hu, which the Chinese accepted. Mr. Obama huddled with Mr. Hu, then called Mr. Sarkozy into the conference with their translators and aides. The three leaders shook hands, agreed to the Obama language, and the issue was resolved in 15 to 20 minutes, the White House official said.

Summit host British Prime Minister Gordon Brown, front row center, stands with the other G20 leaders during the group photo Thursday.

Summit host British Prime Minister Gordon Brown, front row center, stands with the other G20 leaders during the group photo Thursday.

By STEPHEN FIDLER, BOB DAVIS and CARRICK MOLLENKAMP

A World in Need of a New Order

Future historians might look at the collapse of the Soviet Union as the end of the 20th century, and at the current financial crisis as the beginning of the 21st. Remarkably, these two macro events have a common root, which is also the root of globalization: the revolution of Information Technologies.

In the 1970s, the IT revolution accelerated the arms race; the Soviet Union proved unable to follow the United States. Ultimately, the Marxist-Leninist system and ideology vanished.

The financial and more generally the managerial revolution occurred in the 1980s. The world economy embarked on a strong and stable upswing. In the 1990s, many could believe that democracy and market economy had won an irreversible victory and would quickly spread everywhere.

The “international community,” led by the United States, seemed to be on the way to universal peace and prosperity. It was a dream. History came back under the presidency of George W. Bush, starting with 9/11 and ending with the burst of an unprecedented asset bubble. The institutional framework of world governance erected since World War II proved a failure.

What the international community can and must demonstrate now is a willingness to undertake a full reconstruction The G-20 summit would be a great success if it could achieve just that, in addition to agreeing on credible immediate economic and financial measures.

Any attempt to rebuild governance must recognize that the new international system must be multipolar, heterogeneous and global.

Multipolarity means that although the United States will remain the only superpower for the foreseeable future, it can no longer pretend to lead the world alone. This is why we need a relevant group of permanent members for the U.N. Security Council, which would potentially include at least the following five natural “poles” – the United States, Japan, China, Russia and European Union. The members of this group should recognize they collectively share responsibilities for a politically sustainable globalization process, including such issues as climate change.

They should recognize that collective leadership implies taking into account the interests of smaller states. In particular, efficiency and legitimacy imply that regional approaches should systematically be encouraged and developed. For example, no peace and security framework in the Middle East is conceivable without Iran as a major regional partner.

Heterogeneity is a crucial reality. Such countries as China or Russia will not become liberal democracies in the foreseeable future, not to speak of many smaller states. Nonetheless, Western countries should cooperate and develop confidence-building measures with all of them. They should refrain from arrogant neo-colonial attitudes. Democracy and human rights should spread by virtue of examples set by those who claim the superiority of these values.

There is no way to maintain an open world without strong states able and willing to cooperate through efficient and legitimate frameworks. If we fail to move in this direction, we risk reproducing a kind of post-World War I scenario: The combination of nationalist forces and beggar-thy-neighbor protectionist policies could lead to a planetary disaster.

By THIERRY DE MONTBRIAL

New York Times

Thierry de Montbrial is founder and president of the French Institute of International Relations.

Priority 1: World Growth The Practical Steps the G-20 Summit Must Take

PARIS – Tomorrow, for the second time in only five months, the leaders of the world’s top 20 economies will meet to seek a joint response to the unprecedented global economic crisis.

Since this crisis began, I have argued that when we are faced by a challenge of this magnitude, cooperation is a necessity, not an option. In September, I called upon the world to rally together with a response based on coordination and cooperation. Brought forward in concert by the European nations, that initiative led to November’s Group of 20 meeting in Washington, where we laid the foundations for far-reaching reform of the international financial system. Tomorrow’s summit must enable us to put into practice the principles we established.

The world expects that we will speed up the reform of the international financial system and rebuild, together, a better-regulated form of capitalism with a greater sense of morality and solidarity. This is a precondition for mobilizing the global economy and achieving sustainable growth. This crisis is not a crisis of capitalism but the breakdown of a system that drifted away from capitalism’s most fundamental values.

In November, we agreed on four principles that would guide our response: enhanced coordination and cooperation; the rejection of protectionist measures; the strengthening of regulatory systems in financial markets; and a new global governance.

On the first two points, we have made a good deal of progress. We have managed to hold off the specter of protectionism, and many nations have injected massive support for their economies, undertaking ambitious stimulus programs. Countries that offer their citizens a high level of social protection, such as France, have also significantly increased their levels of crisis-related welfare spending. Overall, the world’s leading economies have made comparably gigantic efforts to combat the crisis.

These measures are beginning to take effect and produce tangible benefits, but we must be ready to do even more if circumstances require it. I plan to defend this principle in London: We must do everything necessary for world growth.

This week we must attach the same sense of urgency to the regulation of financial markets. World growth will be all the stronger for being sustained by a stable, efficient financial system and by the kind of renewed confidence in the markets that would enable resources to be better allocated, encourage lending to pick up again and foster the return of private investment capital to developing countries.

We agreed in November that not one financial player, institution or product could be beyond the control of a regulatory authority. This rule must be applied to credit rating agencies, speculative investment funds and tax havens. On the latter point, I want us to go far indeed, adopting a resolution that identifies tax havens and that details the changes we expect from them and the consequences should they fail to respond. The debate on tax havens initiated by the Washington summit has begun to bear fruit, particularly in Europe.

We must reform the required disclosure standards and levels of prudential oversight for financial firms. Sadly, in many countries, this issue has not been getting the attention it deserves.

As we make progress toward reforming global economic governance, we must offer much more space to emerging nations, in keeping with their real weight and the responsibilities they should take on. This holds true for all international bodies, especially international financial institutions. While I am particularly pleased by the expanded membership of the Financial Stability Forum, we must go even further.

Over the coming months, we must pursue a process of renewal throughout the entire multilateral system. In the short term, we must help those who have been hit hardest by the crisis. A good start would be raising the level of funding we make available to the International Monetary Fund. At the European Union level, I have taken up the question of our contribution to the IMF and have found the member states ready and willing. I have also taken up at the E.U. level the question of our contribution to the risks to which certain countries in Central and Eastern Europe are exposed; again, the E.U. member states have been ready and willing.

It is necessary to offer support to the poorer nations falling victim to this crisis. If we do not show solidarity, some risk seeing their considerable efforts toward achieving the millennium development goals nullified. While in Africa last month, I stated my belief that the destinies of Europe and Africa are inextricably linked. We must be ready and willing to stand by Africa and all developing nations that are in difficulty, on every continent.

I remain convinced that the world can emerge from these troubled times stronger, more united and with a greater sense of solidarity, provided we have the will to do so. We cannot achieve radical change overnight, and much remains to be done. We may need future meetings to implement the reforms undertaken in London. I am certain of two additional things: We must achieve practical results beginning with tomorrow’s summit. And failure is not an option.

The writer is president of France.