The evident sigh of relief – figuratively speaking - as the Great Recession appeared to ease in the months since the series of G20 Leaders summits has now been replaced by a rising chorus of anxious concern over the leadership of the G20. A notable frisson has now crept into the discussion on G20. What appeared to be a concerted global effort has now become possibly a ‘delay and talk shop’ gathering.
Though there remain expressions of strong commitment by the leading powers to global financial reform and a collective effort to coordinate exit strategies, the IMF spring meeting in Washington this weekend and the meeting of the G20 finance ministers in Washington has probably raised the ‘concern quotient’ just another notch.
The most visible disagreement at these meetings was the controversy over a “bank tax” In the run up to the Spring Meetings the IMF endorsed the policy that would tax bank profits and also a tax, perhaps, salaries paid to bank executives. While this would not be an international tax, the notion would be that the leading powers would impose such taxes. This has sparked a large and contentious debate with Canada’s Finance Minister Jim Flaherty expressing strong disapproval of such a tax and indicated that he viewed the proposal as an issue of sovereignty. Now it might be that such strong views from Canada might or might not attract attention generally. But in this instance with Canada holding the presidency of the G8 and co-hosting with the South Koreans the G20 in Toronto Canada’s voice carries more weight than would normally be the case.
Meanwhile the US has endorsed the proposal and Timothy Geithner Secretary of the Treasury has indicated that the US hopes to move on the proposal in the United States Congress. Geithner at the meetings said – and in an implicit criticism of the Canadian position - that “We are going to move and I am quite sure the world will move with us.” (Alan Beattie and Tom Braithwaite, “Nations disagree over IMF bank taxes,” FT, (April 23, 2010)). Still the IMF ministerial committee failed to take a decision on the matter. And the head of the IMF, Dominique Strauss-Kahn, raised concern when he suggested some countries – read that the US- were possibly moving too quickly before coordination could be agreed upon.
Meanwhile there are strong disagreements over bank capital. It would appear that the US the UK and a number of other countries have sought tougher capital rules while Japan, Germany and France have opposed the stricter rules. As a result it is not clear that the Basel committee will be able to finalize the new rules or gain the necessary acceptance.
And questions surrounding global imbalances loom larger. While it is not the case the renminbi-dollar exchange rate is the most important question in looking at sustainability and long-term growth, it is likely an element in facing and resolving global imbalances. Nevertheless – in part because of the new ‘softer’ Obama approach to the exchange rate debate, the matter was not even raised by the G20 Finance Ministers. The Finance Minister of South Korea who coordinated the G20 meeting indicated that there were no discussions over the renminbi or the Euro. The latter has come onto the agenda as a result of the solvency crisis posed by Greece. And while there was no doubt attention paid to the Euro and the Greek crisis – at least at the margins of the meeting – it was not directly discussed.
The Canada summits are fast approaching and there is a ‘slightly sickly sense’ that the summits will postpone and delay a variety of decisions. This is a worrisome view. Not good for Canada; not good for the G20.