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All that really matters at the G20, at 1026GMT

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Paul Mason | 10:09 UK time, Thursday, 2 April 2009

What can we tell in advance about the G20 communique?
1. Any figure placed on the fiscal stimulus will refer to what's been achieved already: between $2trn and $3trn. Any new commitment will be a surprise.
2. Expect $500bn extra for the IMF and $100bn specifically to free up trade finance.
3. Lots of fine words about the poor countries and probably some money.

What are the variables?
I would scrutinise the wording in two areas: monetary policy and regulation. We will see today whether the ECB moves further towards zero interest rates and whether it signals what it will do when conventional monetary policy runs out. If quantitative easing gets enshrined as an offically recommended tool by the G20 it will have gone from outlaw/pariah status to the ruling centre of power in less than 90 days.

On regulation, there is still the potential for this to cause a bust up. I would caution against the idea that it is done and dusted. The British media did not fully translate the Merkel-Sarkozy press conference yesterday. I was there and I read it as a very detailed list of red lines on hedge funds, bonuses, tax havens and securitised finance.

I think it will be very hard for the Franco-German bloc to achieve what they want on securitisation: they want effectively to abolish off-balance sheet finance in principle - with all instruments traceable back to a regulated onshore bank.

However, in return for a climbdown on this I think we'll get stronger language on hedge funds and tax havens than the Anglo-Saxons want. In particular with tax havens Sarkozy made clear he is not fetishising issuing the blacklist now, but when it is issued, he wants decisive action to close them down - not only as tax boltholes but as screens for off-balance sheet finance.

If the final shape of the communique is what I think it's going to be, then it's Obama who has to go home and explain to Wall Street how he's going to implement it. They will not be happy.

Finally I think, despite all the cynicism, we have to give plaudits where they are due: if the G20 manages to go from insignificant to a body where the big economies can horse trade effectively and then implement the results, that's an achievement. The summit too could be seen as an achievement. Certainly, compared to the charade of Washington G20, where people simply read out statements and left, it seems to be a working body.

Will it be enough to head off a slump? If you buy the slump scenario, no. The fiscal stimulus lacking co-ordination and inadequate (compared to the 3% of GDP asked for by for example Paul Krugman) will not stave off the collapse. The re-regulation could accelerate the retreat to national pools of capital. And trade finance does not reignite the multi-step production process: that's an issue of credit, not trade finance.

The IMF money will probably be enough to stop collapse in East Europe. But then the stricken countries simply settled down into snowy stasis. And, since aid to the poorest countries has not exactly ignited an industrial revolution there, more aid will do what it always does.

That's my prediction: scrappy, inadequate, half-successful but not a disaster, indeed a personal success for Gordon Brown. Let's see...

Comments

  • Comment number 1.

    Paul,

    We can only hope that the G20 do not distract themselves unnecessarily by spending time considering the sideshow topic of tax havens.

    Governments and tax authorities around the world seem to have taken to asserting that tax havens have had a large part to play in the collapse of the banking system and troubles in the financial markets.

    But there is another side to this; tax havens have also played a helpful and beneficial part in the world of international finance and investments – and they can continue to do so.

    http://www.allenovery.com/g20

  • Comment number 2.

    walshch - your last para - could you explain how these havens have "played a helpful and beneficial part in the world" please? and how does this benefit anyone else not connected to finance?

  • Comment number 3.

    Tomorrow we need to wake up and smell the coffee. Libor 3 mth is still 1.125% above base. Trust on assets is still a question.Try and borrow money, and either you cant or you get screwed. Banks deleverage, and now are being re-regulated and countercyclicated (?) which will tighten credit in the medium term. Petrol prices on the up. Imports increasing sourcing costs up to 25%.

    Again, what is the lending capacity gap caused by the exit of foreign banks and collapse of securitisation markets? Its as if politicians are keen to put right the future before the toxic legacy of the past has been dealt with........

  • Comment number 4.

    i think there could be a good bit of public service in finding out how anglo saxon the free market chicago school stuff really is?

    i think you'll find the main promoters might not be 'anglo saxon' at all?

    to start try Greenspan.

  • Comment number 5.

    "And, since aid to the poorest countries has not exactly ignited an industrial revolution there, more aid will do what it always does."

    ... put poor countries on the equivalent of social benefits, to paraphrase from Erik Reinert. If you read "How rich countries got rich, and why poor countries stay poor" then you can clearly see how foreign aid and international trade (inspired by the Ricardo principle of comparative advantage encouraging nations to specialise) just renders poor countries specialising at being poor.

    Only China has failed to take the bait, and this by protecting / subsidising its industrialisation and holding down its currency (err... not quite the IMF prescription).

    The only true solution to ending poverty is genuine factor price equalisation. Alas this may well result in the long term, but not by bring up the poor to our standards, but by ours reducing substantially.

    I for one will be ensuring that my children grow up to be grateful for what wealth we do have, to not depend on material things, and to be wary that life could very much get worse rather than the limitless progress peddled by our glorious "leaders".

  • Comment number 6.

    try and revisit Keynes, it helped FDR

  • Comment number 7.

    I shudder at the phrase IMF being involved , for surely it is the IMF that has presided over the poverty in Africa in that Africa is poorer now than ever due to paying the interest on imf loans and the terrible dictatorships that the imf 'ordered' or set up there (in favour of the west of course) as a condition of the 'giving' of the expensive loans.

    May I say to Jeremy and the team that I was especially impressed with Tuesday's edition having just got around to viewing it (most nights I fall asleep before 10.30 sorry)! Mark Thomas was the star and his comment on 'us' the tax payer paying rent for government buildings etc to offshore dodgy tax haven dealers who, through pfi scams now own them (having mortaged them to future generations). Get more people like Mark Thomas on so that we mere mortals can hear the real story in real language more often!

 

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