Posts Tagged ‘G20’
I am live blogging from the Friedrich Ebert Stiftung/ Munk Centre/ University of Toronto conference on Global Economic Governance. The keynote speaker is Paul Martin (PM) who is up next. Introductions first from Werner Puschra, Director, Friedrich Ebert Foundation, New York Office and John Kirton, Professor, International Relations Programme, G20 Research Group, Munk School of Global Affairs, University of Toronto. Basically Martin a former PM of Canada is being introduced as the ‘father’ of G20.
Notes on Martin begin here:
Global governance requires a global steering committee covering these issues.
- breadth of issues
- ability to reach out to those not represented in the G20
Nations will negotiate in their own self interest. More and more each country’s self interest is reflected in global interests. Members are members because of power and position, but their responsibilities go much further.
- climate change
Food shortages are and imbalances in the food chain, especially Africa. Governments are downing tools on Africa and awaiting the next banking crisis. Speaking at length about Africa, mentioning Burquino Faso and other countries where the crisis is desperate.
Climate Change: The next meeting is November in Mexico. Mistake to not have a G20 parallel meeting of leaders on climate change. Some movement earlier this year in Europe but will G20 pick it up.
Banking: todays financial crisis shows just how unprepared the economies of the global economy are. Too many countries are having to confront devastated balance sheets (Greece). Notes the UK Government budget this week. If there is another banking crisis and it doesn’t look good in Europe then the impacts will be enormous. Need a protocol to unwind banks. If a bank is too big to fail, it is too big.
Principles of banking. Strengthen national regulation but that is not enough. Suggests the FASB is the best governance against systemic risk. Standards must be mandatory. Peer review ass proposed is inadequate. Much talk of ‘future banking crisis’. If bankers are expecting to act globally, then the referee must be global.
Bankers, shareholders must understand when they cannot take excessive risks and accept the profits with Government support in bad times is no longer involved.
G20 is no longer a club of self interest.
Rise above self interest and nationalism. The current definition of sovereignty is outdated (1648). G20 must be talking about what is required to protect sovereignty in the context of todays global environment. In the last few months the last vestiges of old style sovereignty have been stripped away. (Greece, Portugal)
What the American and European governments have to come to terms with is that when the Chinese, Indian and Brazilian economies stumble as they grow there will be no bailout package large enough. The host country can significantly influence the G20 agenda.
Don Newman, CBC is up with Madelaine Drohan, Canadian correspondent The Economist to facilitate questions
Bank Tax. peripheral issue. PM …No government should pass a law it cannot enforce. The largest and fastest growing banks are state owned (China, Brazil)
Madelaine: some do not like the G20. How will it relate to the UN. PM: membership was picked by Martin and Larry Summers (?). To reopen the membership would open a pandora’s box. However it is important to reach out to all countries. Having said that it cannot rival the UN. G20 is a deliberate group that makes recommendations. At the time of UN reform the commission recommended a group of 20 nations provide some sense of direction to the debates. The numbers in the UN work against ability to make a decision.
Audience: view on fiscal exit strategies. PM … (Andrew – known by Martin). If you have slow economic growth and you cut further you will slow growth. ‘The government is not going to be in my pockets forever so I will have more confidence’. If the UK economy withstands yesterday budget it will be in good shape in 2 years. There is no cookie cutter approach. Martin is a believer in draconian budgets. He supports the UK approach.
Audience: question on Canada’s role in global peace. PM.. Canada’s voice should be heard. Canada can take a leadership role in certain areas and one key is Africa.
Audience: Food security: would fair trade be a better model. Africa’s inability to penetrate foreign markets but the major issue is Africa’s inability to feed itself. Africa should be a breadbasket.
Audience: Is it time for a financial transactions tax. PM … this is separate from a bank tax. Answer is fudgy .. generally thinks its worthy of consideration.
Audience: are you considering re-entering federal politics. PM … No
Audience: global bank regulation and standards for liquidity and capital. PM … extend review to all members of UN or IMF. A model could be the World Trade Organisation (WTO). Usage of peer reviews and recommendation for approval by the Financial Stability Board (FSB). Certain degree of enforcement by global banks seeking common standards across countries. (Speaking to the quality of Canadian banks) “I was the guy who toughened up the Canadian bank rules and I got little push back from the Canadian banks”. PM Anecdote: Martin as PM wanted to visit head of OSFI (Canadian bank regulator) but David Dodge Governor of Bank of Canada told him that was impossible unless accompanied by the Governor of the Bank of Canada.
Madelaine; on influence of the G20 host. PM .. yes the host country could scuttle G20 outcomes if they disagree because of their control over the agenda.
Thats it. Back later for keynote from Jomo Kwame Sundaram, Assistant Secretary-General for Economic Development, Department of Economic and Social Affairs, United Nations, facilitated by Chrystia Freeland, Global Editor at Large, Thompson Reuters (previously US editor Financial Times)
A new concern has arisen over the growth of ‘dark pools’ or private unregulated trading exchanges, where banks and large investors are trading derivatives off balance sheet. IT is significant enough to have come to the attention of this weeks G20.
The world’s stock and derivatives exchanges on Tuesday warned the Group of 20 leaders that the continued “proper functioning” of their markets could not be taken for granted because of a proliferation of alternative trading venues such as “dark pools”.
This is relevant because the near $ 1 trillion in worldwide derivatives remain a risk to some banks’ stability and survival. One company which failed because of derivative exposure was Lehman Brothers last September, and fear of another was part of that which brought us to the ‘too big to fail’ problem.
The head of the IMF continues to rightly focus on the need to clean up bank balance sheets. To ignore them remains a central cause of lack of confidence which will hinders economic prospects due to the uncertainty caused by doubtful asset values.
The more reason to adopt and move forward with Geithners measures right away.
Hard times call for hard measures | Financial Times
While there is no doubt that the forces for recovery are powerful, risks remain. Dominique Strauss Kahn, managing director of the IMF, told the Financial Times yesterday he expects recovery during the first half of 2010, “but the big ‘if’ is the speed of the cleaning up of [bank] balance sheets”.
Deep in the Harper transcript this little gem indicating Canada and India have been working on the framework of a proposal for the G20 to consider on financial regulation.
As you know, Canada has co-chaired with India the working group on future financial regulatory reform. We have a very good report which I think will gain consensus. Essentially, we did come down on that one in kind of a middle-ground position we hope will get the support of both the United States and Europeans and others. And that is, that we actually think it is important that you have strengthened system of national regulation as opposed to an international system of regulation. Canada’s own case is proof that a strong system of national regulation can in fact work.
A quick search uncovered this from Reuters that pointedly makes no mention of Canada but appears to fit the bill of being a recommendation outline. It is very sappy and toothless though, e.g.
- The financial stability forum and International Monetary Fund should create a way for key national financial authorities to meet foreign counterparts regularly to assess systemic risks to the global system.
- All systemically important financial institutions, markets and instruments should be subject to an appropriate degree of regulation and oversight. Large complex financial institutions require particularly robust oversight.
Anyhow I finally located the full doc here is the in very draft form. Here is the Table of Contents.
The conclusion is not complete, however the commentary and lead up are very relevant. More later once I get through it.
Local copy – pdf. g20-enhancing-sound-regulation-and-enhancing-transparency
The FT is interviewing many of the G20 leaders this week. Taro Aso of Japan makes a point here that is, so far, lost on the other leaders. He is reflecting on the Japanese bubble of 1989, exemplified by a drop in land prices of 87%.
He makes the point that dropping interest rates to zero will not bring back investment by itself while people and businesses are pre-occupied with reducing debt.
Transcript: FT interview with Taro Aso | Financial Times
It was back in [the early 1990s] that the Japanese bubble economy collapsed. At that time, land prices in six major cities in Japan dropped by 87 per cent. The government at that time strove to reduce interest rates; in fact the Bank of Japan dropped interest rates to close to zero in order to stimulate the economy – but to no effect. That was because falling land prices and equity prices caused businesses to go into insolvency. As a result, businesses were forced to switch their management policy from maximising profits, to minimising debt.
He is very focussed on stimulus packages as the solution and obliquely criticises Germany for not following that approach.
This gets interesting because US, Japan, UK, and Germany represent a large proportion of the world economy, and one of the four is focussed on regulation not stimulation.
In this case the banking model is broken, and more broken than Japan experienced in 1989, nonetheless the bubble aspects of the economy are identical with asset values falling dramatically.
This sets the stage for an interesting outcome this week in London.
Other interviews so far:
Lionel Barber at the FT interviews US President Obama in advance of the G20 meeting Thursday. Despite the broad sweeping answers it seems unlikely that we will see much tangible outcome from the session, but the G20 draft communiqué (below) is clear about stronger regulation.
Obama interview: Full text | Financial Times
FT: Let’s talk about the G-20. What will be your benchmarks for success?
Obama: The most important task for all of us is to deliver a strong message of unity in the face of crisis. There’s some constituent parts to that. Number one, all the participating countries recognise that in the face a severe global contraction we have to each take steps to promote economic growth and trade; that means a robust approach to stimulus, fighting off protectionism.
Next, we have to make sure that we are all taking serious steps to deal with the problems in the banking sector and the financial markets and that means having a series of steps to deal with toxic assets and to ensure adequate capital in the banking sector.
Third, a regulatory reform agenda that prevents these kinds of systemic risks from occurring again and that requires each country to take initiative but it also requires coordination across borders because we have a global, we have global capital markets, and that will include a wide range of steps, additional monitoring authority coordination of supervisors and various countries dealing with offshore tax havens.
The G20 draft communiqué has been leaked to the FT and some directional clues are there. While the debate on stimulus and protectionism are less clear there seems little doubt we will see more regulation and regulation that is sweeping in nature across countries, Banks and economies … some snippets here, but worth reading if interested to get full context in the 2 or 3 pages.
Reforming financial systems for the future
14. We recognise that weaknesses in the financial sector and in financial regulation and supervision were fundamental causes of the crisis. …
• to work closely and systematically, in accordance with the Financial Stability Forum framework, to supervise cross-border institutions and to complete the establishment of colleges of supervisors for all significant cross-border financial firms;
• to improve over time the quality, quantity, and international consistency of capital in the banking system. Capital requirements should not be strengthened until a significant and sustained economic recovery is assured and the transition managed to ensure that the extension of credit is not constrained. Regulation should limit leverage and require buffers of resources to be built up in good times which banks can draw down when conditions deteriorate;
• each of us commits to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy;
Ms Legarde was a bright star and clear thinker at the recent World Economic Forum. There is not yet broad agreement on the methodology and priorities amongs the countries as to resolve the global crisis.
In another interview she offers some indication of how globalisation actually works, and the comparison of UK and US approaches is stark. There is a long history between UK and France, and now is not the time to let that get in the way.
BH: Are they retreating in Washington and London?
CL: I cannot put my finger on it. It is latent, it is everywhere. And understandably so. Resuming lending is a priority and stimulating growth is an everyday objective because we want to maintain stable employment and stop the fall. But it is a question of a methodical approach. If we don’t start at the root cause of what started this crisis, then we are curing the symptoms and not necessarily the illness itself.
BH: Gordon Brown wants make the global economy the centrepiece of G20 rather than the regulatory agenda?
CL: I’m not denying that he has a very fair point about the co-ordination of economic policies. Alistair [Darling, UK chancellor of the exchequer] made a point in today’s Handelsblatt, and he’s right. I totally agree with him. We need much more co-ordination. Otherwise we’ll get back to the post-Asian crisis, where by diluting the message and retreating from the causes, we’ll be curing the symptoms.
BH: Has European co-ordination fallen apart after the initial bank rescue plan in October?
CL: I hope we can continue to have a line drawn between distressed banks and sound banks and that in any event we are mindful of distorting effects that could result from one approach rather than another. In that vein, the bad bank principle, to the extent that it pretty much protects the shareholders by holding bad assets separately to the normal operations of the bank, is a bit of a query.
In the main, we worked together on the same doctrine, prompted by the Lehman collapse and the Irish approach to protecting deposits in Ireland.
There is not always a lot of consultation.
In a separate interview:
She also chided Alistair Darling, the UK chancellor, who appealed for greater co-ordination in a German interview on Thursday. Ms Lagarde pointed out that whereas Tim Geithner, the US Treasury secretary, called his French counterpart before unveiling his financial rescue package this week, Mr Darling did not consult before going ahead with his latest bank bail-out package last month.