The deepening global financial and economic crisis would defy quick solution from just about any hastily negotiated set of principles for reform coming out of the Group of 20 nations that met in Washington over the weekend. And yet, for all of the obstacles in such snap summitry, the forward-looking results do appear to reflect at least a broad consensus on the direction of change in the world of global finance.
First, the obstacles. The meeting was hosted by a lame-duck leader (President Bush) who remains ideologically uncomfortable with the idea of stepping up international financial oversight and whose national financial sector is getting the blame for generating the financial meltdown hurting promising economies around the world.
Bush had to be prodded by European leaders to call the summit in the first place. He also opposes, for now, a further injection of fiscal stimulus into the world's largest economy—a step that many economists and officials believe would be critical, if coordinated with similar moves elsewhere, to cushioning and shortening the deep recession the United States and other industrialized economies are falling into.
Further, Bush's unflinching defense of capitalism and warnings against overregulation put him somewhat at odds with Western European allies, such as France's Nicolas Sarkozy, who have urged shifting toward international regulatory efforts to rein in the once highflying financial markets that shot credit risks throughout so many interconnected economies.
Finally, there was an understandable temptation to grandstand at the summit in assigning fault to Wall Street and lax oversight from Washington. The anger at the proliferating damage to such emerging economies as Brazil, India, and China has been compounded by the fact that those and other growing centers of financial capital are, by most reckonings, seriously underweighted when it comes to making decisions about the world economy.
So, against that backdrop of low expectations, the lengthy set of common principles and future "action plan" steps rises well above the bare minimum that such a complicated endeavor might have produced. Though the details will be kicked over to working groups, many of the called-for reforms are supposed to be formulated by the end of March. That is a fairly short time span for altering parts of the financial superstructure, but it is long enough to allow the incoming Obama administration to delve into the details of the bargaining and put its stamp on the outcome.
The group will establish a "college of supervisors" to follow major financial institutions whose activities spread risks across national borders—short of a full-on international regulator but significant nonetheless. A clearinghouse will help organize and give transparency to the complicated market in financial derivatives. Efforts to harmonize financial regulation across nations will be stepped up, as will accounting standards. Executive pay incentives and their relationship to risk-taking in the financial sector will be reviewed, and countries, including the United States, will submit their financial regimes to scrutiny by the International Monetary Fund, overcoming past resistance.
The leaders from the developing world at the summit managed to temper their upset, and they went home with a vague though historic promise of enhanced power. The leaders said that the IMF and other world institutions had to be "comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy." The ongoing global power shift, at last, got some formal recognition.
Other countries also seemed partially assuaged by the fact that even if Bush opposes a major shot of fiscal stimulus, President-elect Obama is likely to reverse that judgment and get one through Congress early next year. Obama didn't attend, but he had high-level representatives in former Secretary of State Madeleine Albright and former Rep. Jim Leach on hand to talk.
The G-20 leaders will not have long to wait for Obama himself to get in the game. After January 20, he will be in a position to demonstrate the sort of international cooperation he pledged during the campaign.