The G-20 Summit and Conclusions (1º Assignment)

From September 24th to the 25th the meeting of the world’s 20 largest economies (The G20) takes place at Pittsburgh for the third time since the financial crisis started. The reasons remain the same, as the London summit made five main aims

1. Restore confidence, growth and jobs
2. Restore lending
3. Strengthening financial regulation and restoring trust
4. Fund and reform banks to prevent “future crises”
5. Promote global trade and investment and reject protectionism

http://www.londonsummit.gov.uk/en/summit-aims/summit-communique/


The first aim will take some time until we regain the employment levels of the past, as the LEX Team of the FT says in the newspaper in September 23th “To be sure, things are less bad. But it will be years before growth and jobs return to pre-crisis levels, certainly in developed economies.”(Art.1)

For the second objective there are not signs of change, where the U.S. consumer credit falls a record US$21.6B in July (Art.2). This is a big issue that should be managed by governments, forcing the banks to start lending money so the economy starts to reactivate.

Point third and forth have been one of the few changes on which authorities have started working. Claiming for greater regulatory capital for financial institutions around the world, this means that it will increase the savings rate determined by law. As the Treasury Secretary Timothy Geithner pointed to the increase in the U.S. savings rate as an “encouraging sign.” (Art.3)

But is this actually fair for all?

At least, this benefits to institutions that have received public capital and represents an injustice to those who have not had the public aid. For example, the Spanish banks.

Such aid amounted the saving ratios for the rescued entities to well above the safest banks. Now, the G-20 summit will not only enshrine this imbalance, but also will require the entities that have ´not´ received public aid to meet higher capital standards similar to the rescued ones. A tough punishment for those who acted correctly.

Point fifth refers to the global trading and investment, trying to avoid protectionism for blinding the international transactions. It seems like an easy assumption to face off in theory but, are they actually acting like they preach?

It has been questioned after President Obama decided to impose a 35% tariff on Chinese made tires. Predictably China's Ministry of Commerce said in a statement early Saturday that the move violated WTO rules. "China strongly opposes this serious act of trade protectionism by the U.S," the ministry said, according to the Associated Press. (Art.4)

These types of actions do not seem like the way out for the international recession. “Protectionism is up slightly this year, but no more than is normal in a downturn”, says the World Trade Organization. The latest IMF forecast also predicts that recovery is about to start but will be slow as it shows in (Art.5).

In Conclusion

What we can get from the 3rd year´s meeting of the G20 is that, the course of the world economic order will be decided by the twenty most powerful nations rather than the group of eight (G8). This makes it fairer for the share of emerging economies (on the International Monetary Fund (IMF) definition including developing countries) that could rise to just over half (50.5%) of world GDP in purchasing power parity (PPP) terms, up from 43.7% in 2007. (Art.6)

Among these proposals, participants in the summit have reached an agreement to limit bonuses paid to executives; this should be a good measure if they make sure that instead of the bonuses short-term performance contributed to the financial crisis. "We will tie executive pay to long-term performance so that sound decisions are rewarded instead of short-term greed," said Obama.

In the final declaration, the countries recognize that, despite a recovery has begun; we must not fall into the "complacency", but should also advance in the necessary reforms to achieve "sustained and balanced growth." "We want growth without extreme cycles and markets to encourage responsible, not reckless," say the leaders of the G20.

References:

(Art.1) http://www.ft.com/cms/s/0/b1b75e64-aa12-11de-a3ce-00144feabdc0.html
(Art.2) http://www.financialpost.com/story.html?id=1972879#ixzz0S28iy9Nj
(Art.3) http://www.bloomberg.com/apps/news?pid=20601068&sid=aVpPMKLa50rc
(Art.4) http://www.washingtonpost.com/wpdyn/content/article/2009/09/11/AR2009091103957.html
(Art.5) http://www.imf.org/external/pubs/ft/survey/so/2009/RES100109A.htm
(Art.6) http://www.pwc.com/gx/en/press-room/2009/emerging-economies-global-recession.jhtml
http://www.bloomberg.com/apps/news?pid=20601080&sid=aaYi4yKjBZ.U
http://www.economist.com/world/unitedstates/displayStory.cfm?story_id=14460542&source=hptextfeature
http://www.ft.com/cms/s/0/d3680126-a472-11de-92d4-00144feabdc0.html
http://www.reuters.com/article/GCA-G20Pittsburgh/idUSTRE58G34Z20090925
and daily Financial Times and Wall Street Journal in paper.