Was it a success?
LONDON — The London G20 summit appeared to be a resounding success.
International stock markets cheered the results and staged a broad rally. British Prime Minister Gordon Brown, who hosted the summit, proudly reeled off a list of what had been accomplished — agreement on principles for reforming the global banking system, a common approach to cleansing banks of toxic assets, making an additional trillion dollars available to the World Bank and other international institutions to help troubled national economies, and giving a boost to world trade and an additional $100 million in aid to poor countries.
President Barack Obama declared the summit “historic," “very productive” and even “a turning point." Obama was the star of the meeting, but the results of its deliberations suggest that the United States did not dominate this summit to the extent that it has in previous world forums. That may be the flip side of Obama’s new “listening diplomacy.”
The United States and Britain wanted other countries to follow their example and spend huge sums to stimulate their economies. They lost that argument and agreed to a bland statement in the communique that G20 countries were undertaking fiscal expansion that will amount to $5 trillion by the end of next year. There were no specific pledges from anyone.
Other world leaders attending the summit praised the results. French Prime Minister Nicolas Sarkozy said they were “more than we could have hoped for.” German Chancellor Angela Merkel called the outcome “very, very, good, an almost historic compromise.”
Like all the participants, they were spinning the results for the voters back home, claiming they had scored important victories. Merkel and Sarkozy won an argument to publish a “name and shame” list of international tax havens, but tax havens did not cause the world recession, and shaming them will not cure it.
Much of the communique concerned arcane international finance matters that the general public finds confusing and even presidents and prime ministers have trouble understanding. A banker, Stephen Roach, chaiman of Morgan Stanley Asia, said he was worried that “many of the world leaders had gotten into something that was over their heads.”
Roach, who participated in a conference on the summit, said much of the advice from world leaders was bad economics and did not make sense. He said it was wrong to tell Americans, especially baby boomers facing retirement, not to save. They will not listen to bad advice. “The world is counting on the American consumer to pull it out of the recession,” the banker said. “Forget it. It won’t happen.”
Another observer, Youssef Boutros-Ghali, chairman of the International Monetary Fund’s policy committee, pointed to the “unsustainable imbalance” between the American economy, which was borrowing too much, and the Chinese economy, which is saving too much, and warned “the dollar will have to depreciate.” That was one of the elephants in the room that the G20 made a point of ignoring, because it is an unpalatable truth.
The agreements reached at the summit depend on the willingness of individual countries to carry them out. There will be a follow-up summit this fall to check on progress. President Obama said it will take a year or two to tell whether the summit has been successful in lifting the world out of recession. He was right to be cautious.
In the G20 Washington conference last November, countries swore to avoid trade protectionism, but as the recession deepened, many, including the United States, gave in to domestic pressure and resorted to measures to protect domestic production against foreign imports.
The history of economic summits is littered with promises that were not kept. If this summit turns out to be no different, it will be an historic failure.
Tom Fenton was a foreign correspondent for CBS News from 1970 until his retirement in December 2004, and prior to that for The Baltimore Sun. He is currently based in London and works as a freelance commentator for the BBC and other media.