OK. All the leaders of all these countries got together in London. Before the meeting it looked like the bad boy from Dick Cheney’s “old Europe”, Mr. Sarkozy of France, would walk out, leave the meeting in a huff. Never happened. Instead, President Obama, the new kid, got France and China to agree on some critical language on tax havens. The world seemed astonished that a president of the United States of America could actually walk and chew gum.
I first saw this in Friday’s print addition of the New York Times (yes, I still love that newsprint and reading without staring into a lit screen.) and after some searching found the online link and it turns out it is actually a blog turned into print. Go figure. Anyway, this story was titled “On a Scale of 1-10, G-20 scores a 7.”
For someone like me who is struggling to understand the details of the economic crisis it helped decode the G-20 meeting by lisiting the 10 issues which needed to be addressed and how they did in addressing them. The authors are Edward Hadas and Christopher Hughes.
The G-20 deserves a mark of seven out of 10. The London summit meeting, which concluded Thursday, hasn’t solved everything. But it has made important strides in both battling the current crisis and preventing future ones.
The score comes by grading the world’s leaders on the top 10 issues the G-20 faced. Each issue was scored with a zero, half a point or a whole point. But note that this is not a finely calibrated exercise. Zero doesn’t mean the G-20 achieved absolutely nothing; equally, a whole point doesn’t mean perfection.
The high scores went to fiscal stimulus, trade finance, preventing financial crisis, tax havens and confidence. I think this last one is important because the part of the global fiscal crisis is created by uncertainty and fear.
The zero went to trade imbalances, while the rest got half points: making banks healthy, fighting protectionism, increasing the International Monetary Fund, and exit strategy.
In his Friday column about China and the dollar, Paul Krugman ended with this
The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.
And that failure to face up to new realities is the main reason that, despite some glimmers of good news — the G-20 summit accomplished more than I thought it would — this crisis probably still has years to run.
I think the sticking point is that pesky financial regulation issue never mind stimulus money. Jordan Stancil put it this way in the Nation
Abelshauser [Werner Abelshauser, an economic historian at the University of Bielefeld in Germany and a leading expert on differences in transatlantic economic cultures] argued that it’s hard to change these deeply rooted practices; therefore, Europe can’t succeed under deregulated finance, since it destroys the stability on which Europe’s economy relies. Abelshauser thought a positive outcome of the crisis would be that Europe would return to its proven model of finance.
This is an important point, because it underscores the extent to which the crisis for Europeans is fundamentally about re-establishing a financial system they think serves their interests. Thus the Euro- American debate isn’t really about whether to do stimulus or regulation first–it’s about whether the United States is going to do regulation at all.
America lacks credibility on this count, partly because Obama has not taken a strong stand against the power of finance in the United States. On the contrary, he plans to use taxpayer dollars to subsidize purchases of “toxic assets”–now renamed “legacy assets.” Against that background, the newly stern rhetoric of erstwhile deregulators like Larry Summers is not convincing because it’s clear that the Obama administration is not using the collapse to reorganize American banking along healthier lines. Instead, the US position calls to mind a line from Rousseau’s Confessions: “I pretended to reproach myself for what I had done, in order to excuse what I was going to do.”
The significance of this has not been missed in Europe. Jacques Attali, a key economic wise man in France who has advised both Socialist and conservative governments, told a business daily, “The bankers [in the United States] are going to accept a minimum of regulation. Not more. We see this clearly with the Geithner plan, which reinforces the mechanisms that led to the crisis…. Besides, do you think it’s normal to have taxpayers loaning money to investors so the investors can make profits?” According to Attali, there will be no fundamental change in US behavior on questions like leverage, securitization and debt because “the Anglo-Saxon world lives off that.”
I think this is the big problem. Will the Obama administration listen only to people like Larry Summers and Tim Geithner who believe in the American Capitalism free for all or will we move on to a more regulated system that protects the middle class and creates more equality? Or will he also isten to France and Germany and Paul Krugman? I thought a hallmark of the Obama administration was to be the ability to listen to opposing points of view before making a decision.
The compromise between France and China on tax havens negotiated by President Obama shows that we could compromise also. Regulation in the United States could land closer to Europe without us becoming, to the horror of Republicans, just like Europe. I’m not sure this is an either or situation, but we do need more regulation of the financial industry. Congress and the President just need to act soon.