LONDON (Reuters) - G20 leaders from top industrialised and emerging economies are meeting to chart a path to recovery from the world’s worst economic crisis since the 1930s.
They will seek to agree at a G20 summit on Thursday what fiscal and monetary measures are needed to restore growth, what regulatory changes are needed to the financial system and how to reform international forums such as the International Monetary Fund.
Wary of the threat to confidence any overt disagreements would pose, G20 leaders are under pressure to show a united front at the summit hosted by Prime Minister Gordon Brown.
But cracks have shown among policymakers — particularly over support packages and regulation. Below is a look at what the G20 can realistically hope to achieve.
Best outcome for summit: A strongly-worded commitment to raise spending and do whatever it takes, in a co-ordinated manner, to get the global economy back on track. No public bickering between nations on the best way forward.
Most likely outcome: A firm commitment to act as necessary to restore growth. Criticism already has started from France and Germany of excessive public spending plans.
Where the G20 stand:
Draft Communique: No new commitments, beyond saying “we are committed to deliver the scale of sustained effort necessary to restore growth while ensuring long-run fiscal sustainability.” And on financial institutions: “We are committed to take all necessary actions to restore the flow of credit.”
The United States, Japan, China and Britain have all voiced support for further fiscal stimulus measures to boost demand — eager to act now and risk doing too much rather than hesitate and find out later that not enough was done to avoid a slump.
Much of continental Europe has been far cooler, arguing there is already plenty of support in train which should be allowed to work before committing to further spending, given the precarious state of many nations’ public finances.
One area of a genuine unity is among global central banks who are either using unconventional monetary policy tools or considering using them as interest rates near zero. Only the European Central Bank is hesitating, partly due to legal constraints.
Best outcome for summit: A solid commitment to increase the IMF’s resources by a large, specific amount of at least double the existing $250 billion (170 billion pounds) with contributions from both old and emerging powers.
A detailed, timetabled agreement on how to make the International Monetary Fund more representative, giving more say to emerging economies such as China, India and Brazil.
Most likely outcome: A solid commitment to double the IMF’s coffers, largely based on developed world contributions, but only a pledge to transform international institutions.
Where the G20 stands:
Draft communique: Leaves a blank for the amount of money the G20 agrees to make available to international financial institutions, and each one individually.
The United States favour a trebling of the existing $250 billion fund the IMF has at its disposal to support struggling economies, indicating it could contribute up to $100 billion.
The IMF and European leaders want to see the IMF’s resources doubled and the European Union is prepared to offer about $75 billion. Japan has offered $100 billion, plus $20 billion to the Asia Development Bank, and China has recently also warmed to the idea.
But the size of any contribution from China or other cash-rich economies such as India is likely to be dependent on what is done to make global financial institutions more reflective of the changing economic order.
Australia, Brazil and Russia also want to see more voting rights for developing nations.
Best outcome for summit: A detailed agreement on banks’ capital requirements, regulating credit rating agencies, risk taking, hedge funds and clamping down on tax evasion. An agreement to establish effective early warning systems and monitoring of financial markets, including empowered regulatory bodies.
Most likely outcome: A commitment to drastically improve regulation — with reference to much of the above — but falling short of any timetable for implementation.
Where the G20 stands:
Draft communique: No detailed specifics on capital ratios, naming tax havens. Does agree to oversight for systemically important hedge funds for the first time. Financial Stability Forum to gain new stature, rebadged as Financial Stability Board and work with IMF to monitor macroeconomic and financial systems. Membership to be expanded to all G20 members.
How to police the developed world bankers and financial market operators that lie at the root of the worst financial crisis in living memory is an area rife with disagreements among global policymakers.
Some, such as the European Union, want overarching, cross-border bodies with strong powers to enforce strict rules of engagement. Others, including Britain and the United States want regulatory changes but prefer a lighter touch approach.
Many developing nations are keen to see the developed world take tough action given that what was once purely a financial market crisis has now spilt over to every corner of the globe.
The draft lacks specifics on clamping down on excessive risk taking, revising accounting rules such as mark to market, transparency in financial markets particularly hedge funds and banks’ balance sheets, more openness on tax or bigger capital requirements for banks.
It also says nothing about different ways to handle toxic assets — be it by offering insurance to banks to protect them from losses or subsidising private sales.
Best outcome for summit: A commitment from the United States and India to a timetable to push for a successful conclusion of the nearly 7-year old Doha round of global trade talks. A promise by all to avoid any protectionist measures during the downturn.
Most likely outcome: A recognition of the urgency of the need to reach a global trade deal, but no timetable, alongside firms words renouncing protectionism.
Where G20 stands:
Draft communique: Increase support for trade finance but no numbers yet. Extends its commitment for 12 months not to raise new trade barriers to investment or trade. Calls again for rapid agreement on Doha trade round.
The World Trade Organisation has warned that global trade will slump 9 percent this year, the biggest drop since the Great Depression, heaping pressure on the United States to take the lead in finding a solution to the stalled trade talks.
The talks — aimed at increasing global free trade — collapsed in July because of differences between the U.S. and India over safeguards to protect farmers from food imports. The November G20 summit called for a restart for talks by year end, but that never occurred.
There is also a good chance leaders may agree on offering financial support to grease the wheels of global trade — possibly by as much as $250 billion. British Prime Minister Gordon Brown wants a $100 billion expansion of trade finance to help boost exports.
Where G20 stands:
World Bank has pledged $50 billion in trade finance
Japan said it will pledge $22 billion support too.
Editing by Mike Peacock