UPDATE: The G-20 summit in Cannes has ended with vague promises of increased help from the IMF for euro zone nations to deal with their debt crises. But how much help, or when it will be available is unclear.
What is clear is that this meeting fell far short of what it was supposed to achieve. At the IMF's annual meeting in Washington DC six weeks ago, Britain's Chancellor of the Exchequer, George Osborne, spoke for the majority when he said the euro zone countries had until this summit meeting to fix its debt crisis. In other words, either bail Greece out or let it leave the euro, and build a firewall around massively indebted Italy.
Nothing like that has happened. Greece is having a political nervous breakdown after agreeing to a resuce plan last week. The European Financial Stability Fund, which is meant to provide Italy with protection could find no outside investors at the summit.
After the summit ended German Chancellor Angela Merkel told reporters: "In the next period we will work out the guidelines for the EFSF and then all IMF members are invited to voluntarily participate [in the EFSF] in a way that is appropriate for them." Then she acknowledged, "There are hardly any countries that have said already they will cooperate with the EFSF."
British Prime Minister tried to put a more positive spin on the lack of interest from China, the U.S. and the IMF to provide financial support for the EFSF, "The world has shown it is ready to act but I'm not going to pretend all of the problems in the eurozone have been fixed, they haven't."
President Obama was in diplomatic/professorial mode. He endorsed last week's agreement again and urged European leaders to implement it. “There’s no excuse for inaction,” he said.
There was very little said or done in Cannes to dispel the sense that with the world economy facing its worst crisis since the collapse of Lehman Brothers in September 2008, there is no one really in charge of the global economy.
Who's in charge? Governments?
In April 2009, I covered a similar G-20 gathering in London for GlobalPost. It was the first get together for the world's biggest economies since Lehman Brothers went bust six months earlier.
At the time, the assembled leaders' final agreement called for creation of an extra $1.1 trillion in resources for the International Monetary Fund to stimulate global growth.
Today, the leaders were trying to find more than that that just to prop up euro zone countries.
Last week a deal was done by those countries to help Greece pay its debts and build a firewall around the looming problem of Italian debt via the European Financial Stability Fund. The IMF was reported last week to be contributing in some way to that fund.
How? Neither the head of the institution, Christine Lagarde, nor any political leader has adequately explained what the IMF's commitments are. Whatever was agreed in principle, the IMF is going to need more money from its members.
More questions: How? By what mechanism? When will governments pay in?
The sense that heads of government meet at G-20 summits, make pledges and then fail to fully redeem those pledges is palpable. It also creates the sense that presidents, prime ministers and chancellors are not really in charge.
Perhaps in a globalized economy it is global financial institutions, like Barclay's Bank, British in heritage but run by an American, Bob Diamond, that speak most clearly. In an interview with the BBC yesterday he stated unequivocally that a major European bank could go bust during the current crisis and plans should be made now for managing the fallout from that event.
His words came as France's largest bank BNP Paribas announced a 72 percent fall in third quarter profits. To stop the rot BNP said it was writing off 60 percent of the value of the Greek debt it holds. The bank also announced a sell-off of Italian, Spanish and Irish debt. Its shares rose by 7 percent following the announcement.
Too bad governments can't act so decisively.
Another question facing the G-20:
If not the IMF, who is the lender of last resort?
This was a question posed yesterday by Mario Draghi, the new head of the European Central Bank. Draghi's first action was to cut interest rates by a quarter of a point.
That is something analysts like Nouriel Roubini have been urging the ECB to do for a while. How else do you stimulate growth except by keeping the cost of borrowing cheap? The Federal Reserve and Bank of England have been keeping interest rates low for a while to help growth, now they've been joined by the ECB.
Roubini tweeted his view that Draghi has made a good start but I wonder what Dr. Doom thinks about the ECB chief's comments at a press conference afterwards.
Draghi was asked whether the ECB should buy up the bonds of euro zone nations if nobody else will. No, was his emphatic answer. Governments should not rely on "external" help in sorting out their finances. He then turned the tables on reporters and asked them whether they thought the ECB "should be the lender of last resort." The question was rhetorical. Draghi is a strict constructionist when it comes to the ECB's charter which doesn't permit the bank to print money, or quantitatively ease the euro zone's growth problems.
Which brings us back to the G-20. How do they create global growth when the world's largest trading bloc, the 27-nation EU, is sliding towards recession because the 17 nations which use the euro are in utter chaos. (That may be 16 nations before long if Greece drops out.)
Draghi says that won't happen because the treaty that created monetary union does not lay out terms for leaving the monetary union.
That's a wonderfully literal approach to life. But then Draghi doesn't have to face the electorate, he serves an eight-year fixed term. Nicolas Sarkozy and Angela Merkel do have to face their electorates — Sarkozy has to do so next spring. Yesterday they raised the possibility that Greece might be allowed to leave the euro.
That still seems unlikely to me, but I am not as certain as I was 72 hours ago.
What seems more likely is that over the next 12 months, the EU will evolve into something different, for reasons of logic and reasons of politics.
Politics first. If the IMF is going to be pumped up to help bail-out the euro zone where does that leave British Prime Minister David Cameron? He has promised his Conservative party that not one penny of British money would go to help bail out euro zone countries. But he is one of the leaders in trying to get nations to contribute more to the IMF. The Financial Times quotes Cameron at the G-20 summit saying, "When the world is in crisis, it's right that you consider boosting the IMF, an organization founded by Britain, in which we're a leading player."
That attitude has his party riled up, and they are not fooled by the prime minister's smooth words. Increased British payments to the IMF are going to Greece and Italy, you can't fool us, is the best way to sum up Conservative thinking. This morning's announcement by Italian Prime Minister Silvio Berlusconi that he will accept IMF monitoring of implementation of his proposed reforms to Italy's crippling pension system won't make a dent in British Conservatives' anti-European feelings.
This creates a political dilemma for Cameron, and other leaders of EU nations outside the euro zone, which brings us to logic:
Clearly, the 17 euro zone countries are more closely tied together than the outer ten. It may be time to recognize this in a new treaty that creates a two-tier EU. A 17 nation (16 if Greece drops out) core. With the other 10 maintaining contact as part of the trading bloc. It's an idea mooted in the influential Bagehot column in this week's Economist magazine and it makes sense.
Which is, of course, why it will never happen.
It will be interesting to see what comes out of today's summit. Most of the participants in Cannes are focused on what is happening in Greece, where a confidence vote is scheduled to be held. The Papandreou government may fall, a government of national unity may be created, or neither of those things. The heads of the 20 most powerful economic nations on earth have to bascially wait on this vote being held in country who economy is minuscule in comparison to their own.
Does this mean the answer to my question, who's in charge here, is Greece?