Meeting for the third time this year, Group of 20 finance ministers and central bankers made little progress on a deal on the cost of climate change after heated exchanges that did not bode well for next month’s environmental summit in Copenhagen.
They did, however, launch a new framework aimed at rebalancing the global economy, committing to present detailed economic plans for each other to check by the end of January 2010 to ensure better policy coordination.
And they agreed it was too early to pull the plug on emergency economic support packages because the recovery from the global recession was uneven and dependent on ultra-low interest rates and the trillions of dollars thrown at the problem.
“We are not out of the woods yet,” British finance minister and meeting host Alistair Darling said when the meeting ended.
While most of the conclusions had been widely expected, British Prime Minister Gordon Brown produced the day’s biggest surprise, saying there was an urgent need for the G20 to look at existing proposals to impose a levy on financial institutions.
“We should discuss whether we need a better economic and social contract to reflect the global responsibilities of financial institutions to society,” Brown said.
The International Monetary Fund is already looking into this very issue for the G20 but Britain’s intervention was striking given it has always previously backed away from supporting any global tax given London’s pre-eminence as a financial centre.
“There have been proposals for an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global transaction levy,” Brown said, adding any of those would only work if globally implemented. Washington and Ottawa immediately made clear they would have no truck with a transactions tax though U.S. Treasury Secretary Tim Geithner said there was a case for making financial institutions, which have been bailed out with taxpayer money around the world, pay.
“We agree that we have to build a system in which taxpayers are not exposed to the risk of losses in future, where markets and investors don’t live with the expectations that governments are going to save them from their mistakes,” Geithner said. The G20 started life 10 years as a club for finance ministers and central bankers with little clout.
Over the crisis last year, however, it has grown in importance until leaders at a summit in Pittsburgh declared it the premier economic governing council for the world, given it includes countries like India and China, unlike the G7 or G8.
It took another step forward yesterday after the policymakers set out a detailed timetable for a new process that is hoped will mean there is no return to the kind of imbalances in the global economy where countries like the U.S. run huge deficits paid for by surpluses in Asia.
At the heart of those issues for now, though, are the thorny issues of devaluing or revaluing currencies including China’s yuan and the dollar, and the forum again steered clear of any formal or public discussion on the issue.
G20 countries will now submit economic plans for 3 to 5 years at the end of January for mutual assessment in April. Policy options would then be developed for leaders to consider in June with specific recommendations to be made next year.
