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2008 G-20 summit

The G-20 Leaders Summit on Financial Markets and the World Economy took place on November 14-15, 2008 in Washington, D.C. It achieved general agreement amongst the G-20 on how to cooperate in key areas so as to to strengthen economic growth, deal with the financial crisis, and lay the foundation for reform to avoid similar crises in the future.

Contents

1 Preliminary history
- 1.1 Approaches in the early 2000s
- 1.2 Financial crisis of 2007–2008
2 The Summit
3 Follow-up
4 Similar efforts
5 See also
6 References
7 External links

Preliminary history

Approaches in the early 2000s

Bretton Woods II was an informal designation for the system of currency relations which developed during the 2000s. As described by political economist Daniel Drezner, “Under this system, the U.S. is running massive current account deficits to be the source of export-led growth for other countries. To fund this deficit, central banks, particularly those on the Pacific Rim, are buying up dollars and dollar-denominated assets.”

The notion of a “revived Bretton Woods system” was introduced in a 2003 paper by Dooley, Folkerts-Landau, and Garber, in which it is described as arising after the end of the Cold War, out of the choice of countries,

mainly in Asia,

In 2005, Roubini and Setser argued that the system is unsustainable:

If the US does not take policy steps to reduce its need for external financing before it exhausts the world’s central banks willingness to keep adding to their dollar reserves – and if the rest of the world does not take steps to reduce its dependence on an unsustainable expansion in US domestic demand to support its own growth – the risk of a hard landing for the US and global economy will grow. The basic outlines of a hard landing are easy to envision: a sharp fall in the value of the US dollar, a rapid increase in US long-term interest rates and a sharp fall in the price of a range of risk assets including equities and housing. The asset price adjustment would lead to a severe slowdown in the US, and the fall in US imports associated with the US slowdown and the dollar’s fall would lead to a global severe economic slowdown, if not an outright recession.

Financial crisis of 2007–2008

On September 26, 2008, French, and current European Union president, Nicolas Sarkozy, said, “we must rethink the financial system from scratch, as at Bretton Woods.”

On October 13, 2008, British Prime Minister Gordon Brown said world leaders must meet to agree to a new economic system. “We must have a new Bretton Woods, building a new international financial architecture for the years ahead.”

Italian Economics Minister Giulio Tremonti has said that Italy will use its 2009 G7 chairmanship to push for a “New Bretton Woods.” He has been critical of the U.S.’s response to the global financial crisis of 2008, and has suggested that the dollar may be superseded as the base currency of the Bretton Woods system.

The Summit

Participating entities

The formula is “G-7 plus”. In announcing the summit, US President George Bush said that the summit would bring together members of the G20 industrial nations. The G-20 was set up to respond to the financial turmoil of 1997-99 through the development of policies that “promote international financial stability”. The G-20 comprises countries considered to be systemically important, but omits over 170 governments (192 governments are members of the United Nations).

The first meeting of the G-20 leaders on financial markets and the world economy was held in Washington, D.C. on November 14-15, 2008. The participants were: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States of America, the European Union (represented by France’s President Nicolas Sarkozy as President of the European Council, as well as by José Manuel Barroso, president of the European Commission), the Netherlands (allowed extraordinary presence), Spain (allowed extraordinary presence), the World Bank, the International Monetary Fund and the Financial Stability Forum.

Suggestions

German Chancellor Angela Merkel and French President Nicolas Sarkozy said “Bretton Woods II” should bring about “genuine, all-encompassing reform of the international financial system” early decisions on transparency, global standards of regulation, cross-border supervision and crisis management, to avoid conflicts of interest and to create an early warning system, so as to engender confidence among savers and investors in every country.” In announcing the meeting, the spokesperson for US President George Bush said that “leaders will review progress being made to address the current financial crisis, advance a common understanding of its causes, and, in order to avoid a repetition, agree on a common set of principles for reform of the regulatory and institutional regimes for the world’s financial sector”. UK Prime Minister Gordon Brown, in a mid-October speech, set out several principles. These include transparency (internationally agreed accounting standards, credit insurance market standards), integrity (credit agencies, executive pay), responsibility (board member competency and expertise), sound banking practice (protecting against speculative bubbles).

Key achievements

The White House reported that the summit had achieved five key objectives. The leaders had:

reached a common understanding of the root causes of the global crisis;
reviewed actions countries had taken and would take in the future to address the immediate crisis and strengthen growth;
agreed on common principles for reforming their financial markets;
launched an action plan to implement those principles and asked ministers to develop further specific recommendations that would be reviewed by leaders at a subsequent summit; and
reaffirmed their commitment to free market principles.

A summary of the meeting’s other salient points is presented by the White House in the “Fact Sheet”

Despite the optimism expressed by many of those present, doubts soon began to emerge about the success of the meeting and the chances of achieving all its objectives.

Reactions

- President of the United States of America George W. Bush said “We are adapting our financial systems to the realities of the 21st century”
After the meeting, President Sarkozy of France, said: “For the first time, countries as different as those at this G20 in the United States have reached agreement on the principles, the procedures for action and on an ambitious action plan.”
- India’s prime minister Manmohan Singh welcomed the summit “for the first time there was a genuine dialogue between many of the developed countries and the emerging economies”
- UK Prime Minister Gordon Brown spoke at a press conference: “These are extraordinary times and they require extraordinary measures.”
- China’s president Hu Jintao listed four priorities in reforming the international financial system: stepping up international cooperation in financial regulation; advancing reform of international financial institutions; encouraging regional financial cooperation; and improving the international currency system.
- German Chancellor Angela Merkel said that the stalled Doha round of global trade talks should be pushed forward so that a basic agreement could be reached before President Bush leaves office in January.
- Brazil’s president Luiz Inacio Lula da Silva welcomed the summit’s decision to give a role to the emerging economic powers like Brazil, China and India in restructuring the global economy.
- EU Commission President Jose Manuel Barroso was pleased with the outcome of the summit: ‘I can really say that this was a historic summit. I am very, very happy.’ He added that no one had expected a miracle solution, emphasizing that there was now a ‘clear time schedule’ for reforming the world financial system. ‘This is the beginning of a process, not the end,’ he explained.

Follow-up

It was specifically agreed that there would be a further meeting “by April 30, 2009, to review the implementation of the principles and decisions agreed today.”

Similar efforts

There is a UN “Interactive Panel on the Global Financial Crisis”‘, set up by the UN General Assembly. It held its first meeting in New York on 30 October 2008, led by Professor Joseph Stiglitz. It is covering similar ground as the body described above, but involving a broader range of countries. It lobbies for an agreement involving the “G-192″ i.e. all the members of the UN, not just the G-20.