G20 Pittsburgh summit

What to expect?

by Brent Gregston

Article published on the 2009-09-20 Latest update 2009-09-20 14:43 TU

Wall Street - back on the bonuses, despite the crisis
( Photo: AFP )

The G20 heads of government are likely to walk a fine line, taking some credit for a fragile economic recovery without actually declaring victory over the crisis.

At the top of the agenda, chaired by US President Barack Obama, are plans to make sure a global financial crisis doesn’t happen again.

The G20, whose member countries represent 85 per cent of the world’s economy, has superseded the Group of Seven as the most important semi-annual gathering for the heads of state of the major economies. So its leaders certainly hope they can prevent a further outbreak of economic mayhem. 

Under proposed new global rules agreed by top central bankers and regulators, banks could face limits on how much debt they can run up.

But there is a danger that the drive for financial reform could fade as the crisis wanes, in spite of all the talk about cutting bankers' bonuses and raising banks' capital rerserves.

Executives at Wall Street’s leading banks, despite being afloat in taxpayer bailouts, are once again paying themselves massive bonuses.

"There is nothing in the works to defang the financial system,” says Simon Johnson, a former chief economist at the International Monetary Fund. According to him, the summit is "largely a smokescreen to look busy."

Without the sense of emergency that loomed over the London summit in April, real progress may be hard to achieve at Pittisburgh. National politics, lobbying by special interest groups and a sense of business as usual are all reasserting themselves.

The G20 will also need to discuss exit strategies from emergency measures to fight the world economic crisis.  

In other words, leaders will have to decide when and how to withdraw the trillions of dollars in stimulus that is keeping the global economy afloat. There is general agreement not to do so until recovery takes firm hold.

Any misjudgment by the big central banks would risk setting off a chain reaction that could prove hard to stop.