One day to save the world
However, expectations of a major breakthrough remain low, partly because the summit’s host, President Bush, will be stepping down in a matter of weeks.
At the opening meeting, however, George W Bush remained optimistic. He said that reforms would not help if the world abandoned the ideals of the free market and further restricted trade. He said the summit would be “the first in a series of meetings”.
Outlining the summit’s goals, Bush said the G20 would “focus on five key objectives: understanding the causes of the global crisis, reviewing the effectiveness of our responses thus far, identifying principles for reforming our financial and regulatory systems, launching a specific action plan to implement those principles, and reaffirming our conviction that free market principles offer the surest path to the lasting prosperity,” Bush said.
Speaking ahead of the meeting, he also noted:
The President added that “government intervention is not a cure-all”.
He said that “some blame the crisis on insufficient regulation of the American mortgage market. But many European countries had much more extensive regulations, and still experienced problems almost identical to our own.”
While acknowledging the role of the state in resolving the crisis, German Chancellor Angela Merkel said “federal government is not there to acquire stakes in banks and will be very happy when it can return the stakes to where they belong.”
However, the leader of Europe’s biggest economy hinted that major reform would be needed in the future.
“Federal government will do everything to ensure new rules are in place to prevent another crisis like this,” she said.
The financial crisis, which began in the US, is crippling the American economy and creating serious problems for the rest of the world. To deal with it, the leaders of the world’s 20 richest countries are gathering in Washington for a one-day brain storming session. Will they succeed in finding a way out of the crisis?
Paul Krugman, a Nobel Prize winner in Economics and New York Times columnist, calls the summit a “major non-meeting of minds”, and says no binding agreements will come out of it.
“It’s more of a touchy-feely meeting right now. We’re not going to reach a pact for everybody to spend three per cent of GDP on stimulus this weekend. Possibly, there could be some commitment in principle to some kind of exchange rate stabilisation for emerging markets. I wouldn’t set the expectations too high right now,” Krugman said.
The U.S. is at the core of the ongoing financial crisis. However, American president-elect Barack Obama won’t be attending. It is George Bush who is hosting the summit, even though he’s leaving the White House in just two months. This has made many wonder why the summit is being held at all.
Dennis Kucinich is an outspoken critic of the Bush administration, who has called for George Bush’s impeachment dozens of times.
“Mr Bush is unfortunately not in a position where anything he says is going to be relied on by the world community,” Kucinich said.
Balancing the distribution of money
The population of the G20 states makes up two-thirds of people on the planet. The countries also account for 80 per cent of the world’s GDP.
They are also members of the International Monetary Fund (IMF) – an international organisation that oversees the global financial system, and is an international lender of last resort. Many analysts say the IMF is at the core of the problem. They say the IMF will need to be reformed in order to put a new financial architecture in place.
Quotas and voting power among IMF members do not reflect the sizes of economies and ability to contribute resources.
«49.5 per cent of the voting shares in the fund are represented by the United States and Europe. Only 5.6 per cent of the IMF voting structure is in the hands of China and India. This is ridiculous. This does not make sense,» Colin Bradford says, nonresident senior fellow from the Brookings Institution in Washington.
Russia and the EU have called for reform of both the IMF and the World Bank. However, the U.S. has been sending mixed signals in terms of the specific action it would want to see taken.