The economic and financial crisis is often called a "crisis of confidence". The London G20 Summit was a resounding success in terms of restoring much-needed confidence, thanks to US President Barrack Obama.  Markets from London, Frankfurt and Paris to New York, Tokyo and Hong Kong all gave a vote of approval, as did oil markets. 

President Obama was elected to resolve this crisis, and his election was supported not only by American citizens, but much of the rest of the world, especially Europe.  He recognises that the US is responsible for the crisis.  This gives us hope for resolving the crisis, because we do not have the guilty parties still in charge defending their past actions. 

He also knows that America can no longer go it alone in global affairs.  And he understands that "each country has its own quirks"! 

So what were the concrete outcomes of the Summit? First, the IMF was a big winner of the Summit, as it received the lion's share of the mind-boggling one trillion dollar package.  The IMF's resources will be trebled to $750 billion. According to Fund Managing Director, Dominique Strauss-Kahn, "the IMF is back".

These moneys are in fact loans from big IMF members, which will then be used for loans to the emerging and developing world, some of which will be used to repay Western banks which made bad loans to them.  Thus, it remains to be seen to what extent this money benefits Western banks or the citizens of poor countries who could be lumbered with decades of debt to repay.

Another $250 billion will be provided for trade credits.  This money will come not in the form of grants but in loans or guarantees -- insurance for suppliers against the risk of not being paid.  Apparently much of this will come from existing programmes of export guarantees in rich countries.  And lastly, there is $100 billion for the multilateral development banks to lend to the poorest countries. 

So most of the big action was helping the emerging and developing world.  There was no action to further boost fiscal stimulus.  The Europeans stubbornly refused refused.  And Obama did not wish to pick a fight on this one, preferring diplomacy and friendship over principle.  Sure, most Europeans are already heavily indebted. But it is better to be growing and in debt than the reverse.  As usual, Europe may come out of the crisis slower than the rest of the world.  Still, taking together all the countries' individual stimulus programs, there is lots of stimulus in the system -- according to Gordon Brown, "the biggest macroeconomic stimulus the world has ever seen"! 

There was agreement to strengthen financial sector regulation for all systemically important financial institutions, especially on hedge funds and rating agencies, and to crack down on tax havens ("the era of bank secrecy is over").  But while the Americans recognise the need for better domestic financial regulation, they would not countenance the notion of a global regulator.  They agreed to "build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector".  

The Financial Stability Forum will be transformed into a "Financial Stability Board" to "collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them".  They also agreed that the future heads of the IMF and World Bank will not necessarily come from Europe and the US respectively. 

There was agreement to resist protectionism, but a weak commitment to conclude the Doha Development Agenda.  Although there has not been a real outbreak of protectionism, the World Bank calculates that some 17 of the G20 countries have taken some protectionist measures. 

All things considered, it may seem that not much has been achieved. And most of the real decisions apply to the effect of the crisis on the emerging and developing world.  But while world's leaders may not be all "on the same page", they are all in the same book -- even if Americans will also be more pro-market, Europeans pro-regulation and Asians followers, rather than leaders.

Thanks to Barrack Obama, with his acknowledgement that the Washington consensus of unfettered globalization and deregulation is outmoded, and his great sense of diplomacy, we now have a real international community.

When asked at the end of a press conference how he thought he did, he said quite simply "Well, I think I did OK". Mr President, you did more than OK.

While the economic and financial crisis will be with us for a while, the political dimension of the crisis of confidence is now fading away.

Reference:

www.g20.org