Europe Can be Pleased with G-20 Outcome

Let’s accentuate the positive! The G-20 meeting in London did achieve a much wider consensus and more far-reaching decisions than most people thought possible.  Merkel, Sarkozy, Barroso and Obama all said so. The summit was also remarkable for its recognition of the realities of a changing world economy and the ability of its disparate players to make common cause.

The G-8 is dead: long live the G-20. It would be good to think that this bodes well for an effective global response to climate change in the run-up to Copenhagen.

The Europeans could feel quite pleased with themselves. The conclusions of the London meeting delivered many of the aims which had been set by the EU spring summit and the EU finance ministers in preparation for the London meeting.

But beware of the fudge. As is usually the case on these occasions, the billions and trillions which appeared in the communiqué were not all they seemed, as the FT nicely demonstrated in its graphic. For instance, the $250bn figure to support trade finance apparently relates to the amount of trade supported rather than the cost of underwriting it, which is put at $25bn; and the much hyped extra funding for the IMF comprises some money already committed from Japan and the EU and greater borrowing in the future. The IMF will be selling some of its gold bars as well.

Will this be enough to support the economies of central and eastern Europe?

On the other hand the programme to increase the role of the new global economies in the IMF and World Bank is a recognition of the need for change, while a commitment to avoid trade restrictions provides a valuable sheet anchor to restrain protectionist pressures in difficult times.

The Merkel-Sarkozy positioning in advance of the summit and President Sarkozy’s threat to walk out were intriguing. Their pre-summit initiatives were no doubt an assertion of their independence and a way of distancing themselves from the US, particularly important for both leaders given the public resentment against an American banking system which had precipitated the crisis in the first place.

German opposition to pumping more cash into the economy along the lines advocated by Gordon Brown reflected long-standing German fears of inflation, while President Sarkozy’s threat to quit made great news coverage for him at a time when he is battling deep unpopularity at home – and just as France becomes a full member of NATO. He was able to show himself as the scourge of Anglo-Saxon capitalism.

In fact the London conclusions on financial regulation appear to fit neatly with the EU agenda agreed last month.  President  Barroso has already outlined the timetable for action.  A beefed up global Financial  Stability Board will be a valuable counterpart to the proposed EU risk assessment bodies. The European Commission will be pleased to become a member of the FSB.

Tax havens were President Sarkozy’s final battleground, aimed particularly at the 60 per cent of hedge funds which he claimed were registered in these territories. He wanted instant publication of the OECD name-and-shame list, but ran up against Chinese opposition related to the position of Hong Kong and Macao. It was President Obama who brokered a deal in the margins of the meeting, as Sarkozy himself acknowledged.

“The era of banking secrecy is over” said the final text. Let’s now see how quickly those EU countries which have still to implement the tax standard (Austria, Belgium and Luxembourg) can be persuaded to agree.