Slowing down

G20: The mood among world leaders has shifted from panicked determination to premature self-congratulation. The final communiqué from last week’s G20 summit in Pittsburgh starts with praise for their “forceful response” to the crisis and includes the dramatic claim: “It worked”.

Having saved the world, the G20’s encore is a underwhelming. True, tThe latest accord contains general principles and deadlines on the big issues — bonuses, bank capital, derivatives trading and financial institutions that pose systemic risk. There is a welcome commitment to increase the say of developing countries in international institutions. And there is plenty to spur progress on significant challenges from harmonising accounting standards to promoting trade credit.

 

But specific rules backing up these initiatives seem far away. The main achievement seems to have been coming up with a truly dreadful name for it all — the “Framework for Strong, Sustainable, and Balanced Growth”.

Moreover, other worthy intentions are harder to take seriously. Multilateral peer reviews aren’t going to get the US to keep down its trade deficit or change China’s export-dependent path of development. Nor will the suggested increase in transparency in energy markets reduce price volatility. And commitments to help the poorest countries are largely rhetorical.

Optimists will argue that it is good that world leaders are still engaging in well intended and substantial discussion. But the waning of the crisis has reduced the global sense of urgency. Few of the G20 leaders feel politically secure enough at home to make domestic sacrifices for the sake of the global good. They no longer see the necessity, so they promise to do hard things — sometime in the future.

In fact, the recovery is tentative, the fundamental problems of financial imbalances and erratic capital flows have not been addressed, and the reversal of those forceful official responses will be a high-risk project. The communiqué itself acknowledges this.

It looks like the memory of a recent crisis is not enough to force more than incremental reform. After the latest G20, another crisis seems more nor less likely. And the major necessary changes to the global financial architecture — shrinking the financial sector, balancing trade, stabilising currencies — will have to wait until it comes.