What if the G-20 is like the stock market four weeks ago? No one thought the market would go up over 20% in less than five weeks. Many people did not think it would go up at all.
The expectations for the G-20 meeting are so low that a great deal of positive action may come out of it, depending on whether the analysts looking at the agreements that think that regulation and stimulus are the tonics for the global recession.
It would be surprising if the G-20 did not push for more regulations of global financial firms. The banks and brokerage houses are easy to blame, and the blaming has the benefit of being accurate. They created the financial instruments that helped bring the global economy to its knees and sold them to institutions all over the world. The world is going to be hell for financial firms operating anywhere in the largest nations in the world. They will be regulated at unprecedented levels.
The issue of protectionism is a good deal more tricky. The leaders will make a good show of keeping trade barriers low, but if the economy keep getting worse. the reality may not match the talk. The US government, although it is considered more liberal on trade than almost any country in the world, may be pushed in the direction of restricting commerce with other nations if the other nations act first. Obama faces the problem of having a Congress which will generally support him. But, when a Representative’s district is losing jobs because of the dumping of Japanese steel or Swiss watches, the tenor of the conversation will change. Trade won’t work out the way the G-20 summit says it will. National interests to protect local industries are too strong.
The area where there is the largest division among the nations is clearly in the amount of GDP that should be thrown into stimulus measures to create jobs, support financial firms, and build consumer demand. The US is the radical on the issue saying that its Treasury is “all in” and will raise whatever money is necessary to fix its economy and reverse job losses. Nations like Germany and France think the approach is irresponsible, and they may not have the credit ratings and access to global capital that the US does, which makes the disagreement academic.
But, stimulus plans will not be frozen at the G-20 meeting and plans often don’t last long in a crisis. German and France may find the economic situations of their countries deteriorating more than they expected. The call for issuing more debt and supporting job creation may get louder as unemployment rises into the double digits. What seem like a sustainable polity on debt and stimulus may be now, but if EU GDP begins to contract faster and harder than expected, a wave of government desperation could sweep the countries in the union. Obama may have his way. It may just take several months for other countries to come around to his way of thinking.
The G-20 meeting is just starting and will be over in the blink of an eye. But, it won’t really be over, in terms of policy creation, for months. The pieces on the chess board may have moved a lot by then.
Douglas A. McIntyre