The G-20 Summit Was a Failure
Tuesday, November 18, 2008
Global financial markets want an immediate, bold, and coordinated policy response. G-20 members did not provide it.
This past weekend’s G-20 financial summit has to be considered a failure. At a time when the global recession shows every sign of worsening, G-20 members were unable to agree on a concrete policy response. This raises serious questions about whether the G-20 is an appropriate forum in which to coordinate monetary and fiscal measures for the world's major economies during a crisis.
The most recent data from the United States, Europe, and Japan confirm that the financial crisis has dealt a severe blow to the world economy. Global equity and credit markets remain highly fragile, and most analysts expect the developed economies to experience significantly negative growth for the next few quarters. Meanwhile, it appears that growth has slowed abruptly in emerging market economies such as China and India.
G-20 members should have responded to this dismal outlook with firm action. They should have focused on immediate fiscal stimulus programs, which would have been a useful complement to the coordinated interest rate cuts and bank rescue measures announced at the previous G-20 meeting in early October.
At a time when the global recession shows every sign of worsening, G-20 members were unable to agree on a concrete policy response.
Instead, the weekend summit produced merely a nebulous commitment to “take whatever actions might be necessary” to stabilize global financial markets and an agreement on principles for reforming both the financial system and multilateral lending agencies. Mercifully, G-20 members agreed to pursue these reforms within a framework of free and open markets. Yet their vague pledges were announced in a wordy communiqué that was short on specifics.
Their lack of urgency is disturbing. At a time when global financial markets are clamoring for an immediate, bold, and coordinated policy response, G-20 members have delayed their next summit until April 2009. This only heightens the probability that equity and credit markets will experience another meltdown as the global economy sinks deeper into recession.
Why did the weekend summit yield such meager results? Several reasons. For one thing, it was convened hastily at the behest of French President Nicolas Sarkozy and British Prime Minister Gordon Brown, both of whom were motivated more by domestic political concerns than they were by a pressing desire to stabilize the global economy. As for President Bush, his lame-duck status deprived the meeting of the strong leadership that it desperately needed. For better or worse, President-elect Obama decided to skip the summit and watch its proceedings from Chicago.
On a more basic level, the large and diverse G-20 may not be an appropriate forum in which to tackle a crisis whose roots lie in the U.S. and European economies. Indeed, it might be easier to achieve policy coordination among the major economies in the smaller G-7, assuming that China were included.
Ultimately, real economic leadership must come from the United States. The world trusts that Barack Obama will provide that leadership after January 20. Let us hope that global financial markets can wait until then.
Desmond Lachman is a resident fellow at the American Enterprise Institute.
Image by Getty.