Divided G20 puts on united front

Reuters

The world's leaders on Thursday said they would impose new financial rules and promised more money to take the edge off the worst economic crisis since the 1930s.

But as the G20 summit drew to a close, host Britain conceded there was still unresolved business. Germany and France are demanding concrete measures on tax havens, hedge funds and markets rather than promises of action.

Paris and Berlin, fearing the summit would fall short of the mark on regulation of tax havens, hedge funds and markets in general, went in gunning for concrete announcements.

“Any regulations we don’t agree here won’t be agreed for the next five years,” German Chancellor Angela Merkel said. “The summit is not about horse trading between regulation and economic growth programmes.”

United States President Barack Obama said there were no substantive differences between the US and Europe despite the firmer stance taken over new financial rules by Europe’s two largest economies.

Washington also wanted tougher regulation, Obama told a media conference on Wednesday with British Prime Minister Gordon Brown.

French demands

It was not clear whether the fissure at the meeting of 20 of the world’s leading economies over France’s demands for blacklisting of tax havens would be enough to derail a message of unity.

Leaders were also divided on how to police tax havens – but Switzerland should be safe, according to Cédric Tille, a professor at Geneva’s Graduate Institute.

“The risk of Switzerland to be included on a blacklist seems to have been rejected,” said Tille. “But participants in the G20 will be tempted to focus on this theme if they have nothing to present at the end of the summit.”

Switzerland, which was not included in the meeting, on Wednesday attempted reconciliation with Germany, one of Europe’s most zealous critics on the issue of banking secrecy. Swiss Foreign Minister Micheline Calmy-Rey and her German counterpart, Frank-Walter Steinmeier, agreed to “leave recent irritations behind them”.

Highest priority

Academics in Switzerland say the top priority for G20 leaders will be to conclude their meeting with a united front.

“This summit will provide an opportunity to reaffirm a number of key principles such as the rejection of protectionism, increased transparency and increased regulation of international financial transactions and better ethics in modern capitalism,” said Stéphane Garelli, a professor at Lausanne’s International Institute for Management Development.

“The highest priority will be to show a united front on the crisis even though members of the G20 differ on what to do,” he added

Peter Mandelson, Britain’s business minister, confirmed not all leaders were seeing eye-to-eye. He said: “I wish [the differences] were manufactured and then they would be easily ironed out. They have persisted overnight but I think you’ll get an outcome that corresponds to people’s levels of expectations and ambitions.”

The United States and Britain have taken decisive measures to boost their economies. Leaders in continental Europe have been more measured, focusing more on regulating financial markets.

The Swiss parliament has agreed two stimulus packages worth a total of SFr1.6 billion to boost private investment, support infrastructure and prevent job cuts.

The government is due to decide in June on a third programme if the economic downturn continues.

Smoothing over

The European Union could move to smooth over a fragmented system of regulating financial markets without the approval of the G20, according Cédric Tille.

“The United States has substantial work to do at home, as is seen by the reform proposals presented last Thursday by Treasury Secretary Tim Geithner,” he said.

A communiqué drafted for the meeting said leaders would submit large hedge funds for supervision for the first time and enhance regulation through a new agency and a strengthened International Monetary Fund (IMF).

G20 leaders were preparing a major expansion in resources available through the IMF, possibly including a tripling of its war chest to $750 billion (SFr855 billion).

“There will be reform of the IMF,” said Tille. “But the most important reform – expanding the representation to reflect today’s world – faces resistance among the Europeans, who are strongly represented on the IMF board.”

swissinfo with agencies

Markets react

World stock prices recovered some lost ground on Thursday on hopes for a strong agreement by the G20 leaders.

The Swiss Stock Exchange rose on Thursday morning after Japan’s Nikkei gained 4.4%.

Those gains will vanish if the summit does not deliver.

G20

The Group of 20 first met in Berlin in December 1999. It was created as a response to the Asian financial crisis of 1997-98, which exposed the need to bring emerging market nations into the core of global economic discussion and governance.

The G20 represents around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) and two-thirds of the world’s population.

The Group met in Washington on November 15 and agreed a plan to try to restore global growth and bring order to a financial system reeling from the worldwide credit crisis.

The leaders pledged to “work together to restore global growth” but stopped short of any coordinated new fiscal measures, saying spending policies should be used to stimulate domestic demand rapidly, as appropriate for each country.

Swiss stimulus packages

The Swiss parliament has agreed two economic stimulus packages worth SFr1.6 billion in response to the global financial crisis.

A first package to the tune of SFr980 million to boost private investment and prevent job cuts was agreed last year.

The second stimulus package worth SFr710 million agreed in March mainly targets infrastructure projects for road and rail. It also includes credits for research, energy, environment and tourism.

The government is due to decide in June on a third programme if the economic downturn continues.

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