Business News

(eca079): ANALYSIS: From revolution to evolution: G20 entersnew era

By Nick Rigillo Nov 12, 2010, 12:03 GMT

Seoul - In the end, it was all a bit of an anti-climax: Quarrels did not lead to brawls, and panic was replaced by 'concern.'

The joint statement of the Group of 20 (G20) summit in Seoul diplomatically papered over the main bones of contention, leaving those of a revolutionary inclination with a sour taste in their mouths.

All very good news for the world.

The G20 summit of the world's leading economies, which ended Friday in a chorus of 'cooperation,' 'historic achievements' and 'concrete results,' certified the forum's official transformation: From an instrument of crisis-management to embryonic world economic governing body.

As US President Barack Obama put it: 'People should not think that every time leaders come together they are doing some revolutionary thing.'

Especially in the absence of a crisis, 'speed seems less of the essence ... sometimes there is evolutionary progress,' Obama said before departing from Seoul.

While finance ministers and central bankers of the world's 20 leading economies had been meeting regularly since 1999, the first ever G20 summit only took place in November 2008, when then US president George W Bush invited fellow heads of state and government to Washington to discuss the financial crisis that had erupted two months earlier, following the collapse of financial services firm Lehman Brothers Holdings Inc.

Over the next year, G20 leaders were forced to act as economic firefighters as financial meltdown led to the worst recession in decades, but as the world economy started to pull itself together, things began to change.

And by their last get-together, in June in Toronto, leaders were no longer having to deal with emergencies, but were instead planning a future in which 2008-style disasters would never again take place.

'The G20 has been instrumental in dealing with the immediate economic and financial crisis. The challenge now is to deal with the post-crisis period,' Herman Van Rompuy, head of the European Union Council, wrote in a paper published ahead of the Seoul summit.

In South Korea, much of the world's attention was grabbed by the ongoing war of words between countries with large trade deficits - read the United States - and countries with large surpluses - such as China and Germany, with the likes of Brazil caught in the capital flight crossfire.

In other headline-grabbing developments, China successfully blocked attempts to be singled out as a currency manipulator - a defeat for transparency; while the US was told that capping current account imbalances at around 4 per cent of gross domestic product was not a very good idea - a victory for common sense.

As German Chancellor Angela Merkel put it mid-way through the summit, to impose political limits on a country's trade surplus or deficit is not only economically unjustified, it also goes against 'the principles of free trade.'

More sensibly, leaders tasked their finance ministers to work with the International Monetary Fund (IMF) to draw up a set of 'indicative guidelines' designed to monitor such imbalances and act as a sort of early warning mechanism.

The two most important achievements of the Seoul summit were also the most predictable: Leaders vowed to implement stricter rules on bank capital and liquidity standards, and they endorsed an overhaul of the IMF that grants more power - and responsibilities - to emerging countries such as China, India and Brazil.

The importance of such decisions should not be underestimated.

What next?

John Kirton of the G20 Information Group, an international think-tank run by the University of Toronto in Canada, says the G20 must start operating as 'a crisis prevention mechanism.'

'Crises inspire the G20 to come together. But there is a cost if all the political energy is devoted to crisis management,' Kirton told the German Press Agency dpa.

According to David Shorr of the Stanley Foundation, a US non-governmental organization which promotes international dialogue, the G20 should expand its horizons and start dealing with political issues as well.

'Heads of state and government have overall powers, so they should take full advantage of their get-togethers,' Shorr said.

There is little chance of that happening any time soon.

French President Nicolas Sarkozy, who will host the next G20 summit, in November in Cannes, says the immediate priority is to create a new monetary system that is no longer dominated by the US dollar and is instead 'truly multilateral,' and a new form of 'capitalism with a conscience.'

But even the ambitious French leader acknowledges that his plans will need time.

'We have a lot on our plate. It can't be covered in one year,' Sarkozy said.

Evolutionary talk indeed.