Will G20 leaders stick to agenda?
The topics of discussion routinely fail to take into account the long-term needs of the world and instead produce only short-term responses to the impending events which happen to be making headlines at the time the G20 meets
Saudi Arabia's King Abdullah and leaders of the world's 20 other largest economies will meet in Seoul, South Korea on Friday for the fifth in a series of G20 Summits meant to respond to the global financial crisis and to ensure that the mistakes which lead to the debacle in 2008 will never be repeated
From Washington, DC (2008) to London (2009) to Pittsburgh (2009) to Toronto (2010), G20 Summits are, in short, a demonstrated commitment on the part of our leaders to satisfy the public demand for financial reform.
Alas, we should not expect much from Seoul. As our experience in the past two years would indicate, agenda get set from one summit to the next and are then forgotten. The topics of discussion routinely fail to take into account the long-term needs of the world and instead produce only short-term responses to the impending events which happen to be making headlines at the time the G20 meets.
Given that not much more had been achieved, our last hope was Toronto. But this time the Toronto meeting focused on the role of international financial institutions, calls against market manipulation and declarations of solidarity with those countries suffering "the attacks of speculators".
What should we therefore expect from Seoul?
The Toronto meeting ended with a clear determination to reform the financial system and to boost economic recovery. The 20 nations, which collectively represent 85 per cent of global GDP, pledged "to act together to achieve the commitments to reform the financial sector made at the [previous] summits". A few lines later, the final communique of the Toronto Summit reads that "our reform agenda rests on four pillars".
Four pillars
So perhaps the answer lies in an understanding of what these four pillars really are:
- To provide a strong regulatory framework — specifically, the need for a new global regime for bank capital and liquidity, pioneered by the Basel Committee on Banking Supervision (BCBS).On this point, we have certainly made progress, as the new capital requirements for banks have already been agreed upon and implemented in most countries.
- The effective supervision and early intervention systems. By this the leaders of the world mean putting executive powers into place in order to detect and stop banking crisis before they reach the level of extremity that we saw in 2008.
- The third pillar describes systemic risk and systemic institutions. This pillar closely relates to the previous commitment made in Toronto where the G20 called for "policy recommendations to effectively address problems associated with, and resolve systemically important financial institutions by the Seoul Summit".
- Finally, the fourth pillar is transparent international assessment and peer review.
In other words, it's bank secrecy again. Although an interesting conflict, bank secrecy is completely unrelated to the financial crisis.
As is the reference in the Toronto Summit to money laundering and terrorist financing, which I suppose the leaders of the world must somehow relate to the falls of Lehman Brothers and AIG.
Encouraging agenda
All in all, the agenda again looks encouraging, relevant and consistent.
If well managed, this agenda could result in truly new financial system.
However, the bad news is that the Obamas, Merkels and Hus of the world do not have any real intention to address this agenda.
Instead, the preparatory meeting in Gyeongju, South Korea, revealed that the true focus of the discussion is going to be currencies and trade deficits. While currencies and trade deficits are relevant and timely, they are not the topics that G20 Summits are intended to address.
I'm willing to make a bet: On November 12, the Seoul Summit will end up with a mere declaration of intentions on a new currency system and an extensive to-do list which will undoubtedly refer once again to green recovery, hedge fund supervision and control, OTC derivatives until the next one.
The writer is professor of finance at IMD, the leading global business school based in Lausanne, Switzerland. He directs IMD's Advanced Strategic Management programme.
