Thursday, 12 March 2009

(Don’t go) hoping for a G20 miracle

“It would be a big mistake to think that the G20 can have a miracle in London”, Paul Nyrup Rasmussen told us, speaking at the Fabian Society’s event on the G20 and beyond in London last night. But Rasmussen, President of the Party of European Socialists and former Danish premier had no doubt about the scale of the “ambitious but realistic” agenda that was needed.

A starker warning came from Stryker McGuire of Newsweek, stressed how different it looked from across the Atlantic, arguing that an unrealistic emphasis was being placed on the “April 2nd moment” for an administration that was just 60 days old. He had found that the “G20” and “London” had appeared in just one Washington Post story, and none at all in the New York Times, in the last month.

“It is easy to forget how insular the US can be, even under the most global, the most multilateral, the most progressive of US Presidents in recent memory. The Obama administration is utterly consumed with what is going on in the US. They are not paying enough attention to what is going on in London. They are not that engaged. That does not mean this is a lost cause. Obviously, this had to be done. It is a very important step in the road. On April 2nd, there will be a statement which will move the US and other governments nearer to where they need to get to”.

Rasmussen believed “the G20 is here to stay” and that it would become the most significant global forum of this kind, predicting that Italian efforts to revive the G7 would fail. It was important for the London summit

Treasury Minister Stephen Timms set out the four tracks on which progress was needed at the summit.

Firstly, macroeconomics: coordinated action to stimulate the economy together.

Secondly, financial regulation to deal with “quite significant gaps internationally”, addressing both what the global rules should be and how they should be implemented. This included dealing with tax havens (on which I will post separately).

Thirdly, reform of the International Financial Institutions, dealing with the governance, resources and instruments of the IMF.

Fourthly, there was a need to link the response to the economic crisis with broader challenges for a reformed world economy: the pathway to sustainable growth, the impact on the developing world and the commitment to the millennium development goals; and the issue of climate change.

Timms felt that making these links depended on the summit also becoming a focus for a broader politics of internationalism, not just from governments and politicians but also from coalition-building from civic campaigns. He welcomed the launch of the Put People First coalition, including the trade unions, development and environmental NGOs.

Rasmussen particularly stressed the need for a coordinated fiscal stimulus, a framework for regulating the financial markets, and a new global governance architecture.

While there has been much discussion this week about how far the US administration has been able to deal with the detail of summit preparation, on the need for a coordinated fiscal stimulus it could well be the Europeans who need to catch up.

Both Timms and Rasmussen noted Treasury Secretary Geithner’s significant call for a coordinated stimulus equivalent to 2% of global GDP this year, and equivalent to 2% of global GDP next year.

This was the type of engagement wanted from the US. But this also placed the spotlight on the scale of the European response.

Rasmussen noted that he had clashed with Commission President Barroso over whether the actions of EU governments had come anywhere close to matching the commitments they had made.

A boost of 1.5% of GNP had been pledged and promised. Now Barroso was claiming there had been a 3.3% stimulus. This was not a credible claim (not least because counting the ‘automatic stablisers’ hardly made sense)

The real demand effect had been just 0.9%, said Rasmussen, which was half of what the US was proposing. (Moroever, the question about the US stimulus is perhaps mostly whether it is sufficiently large).

The central message needed to be to catch up to the scale of the crisis. Rasmussen was quite clear about what the central argument should be:

“We need to do more”.

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