Tuesday, October 6, 2009

Can the G-20 Prevent the Next Crisis?

All eyes are on the G-20 meeting in Pittsburgh where leaders aim to reshape the global financial system, shifting more power to emerging countries. German newspapers on Friday discuss the gargantuan task facing the group -- and weigh up its chances of averting future financial meltdowns.

The Group of 20 is expected to seal an agreement later on Friday to assume a leading role in the global economy, giving emerging countries such as China, Brazil and India more clout and imposing tighter controls on bank capital, news agencies reported.

The G-20 looks like rapidly replacing the G-8 group of the world's leading industrialized nations as the key forum for discussing global issues. The leaders of the 20 countries met for a second day on Friday in a bid to stabilize the global economy as it frees itself from the worst recession in decades.

The agreement is to be officially announced when the summit draws to a close but according to a draft document obtained by Reuters the G-20 will pledge to retain emergency economic measures until it is clear that the global recovery is firmly on track. "We will act to ensure that when growth returns jobs do too," the report says. "We will avoid any premature withdrawal of stimulus."

The document is to underline that the G-20 group, which includes Argentina, Indonesia, Saudi Arabia and South Africa, has a "responsibility to the community of nations to assure the overall health of the global economy."

But German commentators on Friday ask how successful leaders would be in establishing measures to ward off future crises. Some editorials praise the fact that the G-20 will replace the G-8 (formerly the G-7) which has dominated the world stage for decades, voicing confidence that the new constellation will be able to hammer out much needed financial-market regulation. Others, however, warn that national interest and conflicts may impede real progress.

The center-left daily Süddeutsche Zeitung writes:

"It is not bonus payments which have triggered the biggest banking disaster of all times. Rather it has been caused by the many elites' blind confidence in the markets, a lack of regulation, cheap central bank funding, and, more than anything, bank directors' certainty that the state would bail them out even in cases of severe mismanagement."

"Solving these problems is complicated … not least because such details are difficult to convey to a wider public. That is the reason many G-20 heads of state, and media organizations, prefer to focus on the issue of manager pay. That is certainly a popular topic but it won't prevent the next crisis."

The left-leaning Frankfurter Rundschau writes:

"During the whole crisis the United Nations was visible only on the sidelines. That is a shame as the G-20 is not a democratic organization and only the winners of the global economy are allowed to take part. On the other hand, those countries represented in Pittsburgh control 90 percent of the global economy and two thirds of the world's population. In any case it is impossible to understand how people can hope for more democracy from an organization which places power not with its members but rather with a five-member Security Council. It is illusory to see the UN as a really democratic global organization. But the G-20 is for real -- and it is good that it exists."

The Financial Times Deutschland writes:

"The economic crisis has demonstrated how Germany's dependence on international markets makes it vulnerable. Reducing temporary imbalances is therefore also in Germany's economic interest."

"To avoid future crises, it is imperative that financial regulation as well as the temporary imbalances are dealt with. The only danger which really threatens the debate about the imbalanced markets is the risk that one topic will be played against the other, meaning that little is achieved in either direction at the end of the day."

The left-wing Berliner Zeitung writes:

"Right now the G-20 is discussing the future design of the global financial markets…. But the banks will not be too rigidly reined back. Instead of shrinking them to a less dangerous size, their potential for growth will be given space, and even encouraged by states. After all, every country wants to have a 'global player' in their home market. Sizeable provisions -- i.e. forcing banks to boost risk provisions during prosperous years -- will not happen. The financial transactions taxes will also remain low….This has a simple reason: The more regulations there are, the less profit will be generated. This profit should, however, be high -- not because politicians are swayed by bankers but rather because all state leaders want potent credit institutes as a foundation for their national economies. This basis will not damage any politician -- even if it will, almost certainly, lead to another financial crisis."

Jess Smee

URL: http://www.spiegel.de/international/world/0,1518,651298,00.html