One More Chance

Will the London summit fare any better? There are reasons to be optimistic. The November G20 meeting was hastily arranged, and hosted by an unpopular and lame-duck Bush administration. The global reach of the downturn still seemed uncertain. Things are different this time around. Barack Obama's political capital is significant. The depth and breadth of the crisis is now fully acknowledged by all. With six months to prep, a variety of private-sector and public-sector agencies have drafted some useful guidance for the heads of state. The finance ministers' meeting demonstrated a consensus toward broader oversight of the financial sector.

That's the good news. The bad news is that there is more that divides the G20 than unites it. Disputes over fiscal policy still split the transatlantic relationship. This week the Czech Prime Minister (and rotating European Union president) Mirek Topolanek warned the European Parliament that the Obama administration's fiscal plans represented "a way to hell." This came a day after Topolanek's government fell in Prague, weakening the EU's ability to speak with a common voice.

In the past month, the BRIC economies have made their displeasure with the status quo known. Russia and China have articulated their frustrations with the dollar as the world's reserve currency. Both countries have proposed ways to create a reserve currency that is less dollar dependent. Senior U.S. officials, including Obama, Paul Volcker, Tim Geithner and Ben Bernanke, have flatly rejected these ideas. Brazil has argued that the responsibility for fiscal stimulus should rest with those responsible for the crisis in the first place—the developed world.

Perhaps the most cynical exercise the G20 will engage in is the inevitable reaffirmation of completing the Doha round of trade talks. This same pledge was made at the Washington summit six months ago—and nothing happened. Given the rise in economic populism, the political will to complete it now has receded even further. Despite this roadblock, the heads of state will feel obligated to proffer this empty promise. As Brazilian Foreign Minister Celso Amorim explained last week, if the positive statements about Doha are not in the communiqué, then it will be politically easier for governments to raise protectionist barriers even further.

As World Bank president Bob Zoellick recently observed, the promotion of the G20 to the global stage is an accident of history. The group had a harmless existence for close to a decade. When the crisis hit, it was the only forum around that brought together the key players in global finance.

The G20 gets a mulligan for last year's hastily arranged summit. A failure to act this time around will be far more damaging. In the absence of global cooperation, countries will go it alone, which means a ratcheting up of financial, trade and fiscal protectionism. And today's global economy already has too much in common with the 1930s.

© 2009