Global plan for recovery and reform: the G20 London summit
Both the financial crisis and its economic fallout have gone from local to global. Despite the rapid and coordinated global responses so far, the world is not out of the woods yet. Most forecasters predict that the global economy will shrink in 2009, to an extent which has not occurred since World War II, and the International Labour Organisation forecasts that 50 million jobs could be lost by the end of the year. The situation has become so serious that the International Monetary Fund chief Dominique Strauss-Kahn is calling it the ‘Great Recession’.
Against this backdrop, the leaders of the so-called Group of Twenty, a group of the world’s largest 20 economies who together represent 85% of the global economy, met in London. Hosted by UK Prime Minister Gordon Brown, the assembled leaders included US President Barack Obama, French President Nicolas Sarkozy,German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi, European Commission President José Manuel Barroso, China’s President Hu Jintao, as well as the leaders of Japan, Russia, India, Brazil and the other G20 members. They gathered to hammer out the next phase of their coordinated approach to charting a course out of the current crisis.
The G20 agreed a bold US$1 trillion (€800 billion) package to help the global economy turn the corner. “The decisions taken today are much more ambitious than was expected,” commented Commission President José Manuel Barroso. “That is the result of hard work but also of the spirit in which the discussions were conducted.”
Jump-starting the economy
Prior to the summit, G20 finance ministers and central bank governors met to pave the way to an action plan which focuses on restoring global growth and strengthening the international financial system.
In order to kick-start global growth, the G20 summit agreed to do everything necessary to unblock credit flows and implement swiftly the economic stimulus measures announced so far in order to boost global demand and create jobs. “The key to recovery is boosting global demand. Demand means jobs. And jobs are our first priority,” commented Barroso.
“In Europe, our fiscal effort is over €400 billion. It will rise to nearer €500 billion. The priority is now to implement the discretionary part of it quickly, and in full,” Barroso noted.
In addition, G20 leaders agreed to support emerging and developing economies to cope with the reversal in international capital flows. The World Bank estimates that emerging economies will face a combined financing gap in 2009 of at least $270 billion and possibly as much as $700 billion. Towards that end, the G20 has decided to triple the IMF’s ‘war chest’ to up to $750 billion, as well as agreeing a $250 billion increase in global money supply. Leaders also agreed to reinforce the tools available to the IMF, so that in future the Fund will not just be able to react to crises but will be in a better position to help prevent them.
From recovery to reform
The G20 also agreed on ambitious measures to reform and strengthen the international financial system to help avoid another crisis, including enhanced regulation of major markets, tougher post-recovery financial regulation, and strengthened international co-operation to prevent and resolve crises. In future, regulations will apply to every bank, everywhere, every time. Among the groundbreaking initiatives are new rules on bank pay and bonuses, a blacklist of tax havens that could lead to sanctions and making large hedge funds ‘for the first time’ subject to regulatory oversight. Such reform ought to make global financial systems more resilient to shocks, as well as more efficient, equitable and sustainable.
The G20 summit delivered a strong message of global unity in the face of the ongoing crisis. The fact that G20 members have been able to agree to coordinate so closely is a considerable achievement. A major driving force behind this success has been European leadership. “The European mark is clear in the conclusions. With our friends and partners, a united EU is driving this process,” said Barroso.