G20 Evades...but Hints at Real Reform

Washington to World:

1. We do not accept responsibility for the global recession.
2. We do not apologize.
3. We do not admit that we are incompetent to rule the world.

I hereby announce a global competition to determine what to call this! Hubris? Denial?

A real step toward a Washington apology for creating this mess and a fundamental reform of the trashed global financial system was requested by Europe but rejected by Washington:

The announcements came after negotiators from the United States and Europe worked frantically to hash out an agreement on new regulations, a day after France and Germany signaled a rift over the level of scrutiny that regulators should have over hedge funds and other global financial institutions.

While the United States was determined to resist European efforts to create regulatory authorities with crossborder authority, officials said the two sides worked out policies on transparency and early risk warnings for banks that would placate France and Germany.

“There’s not going to be a ceding of sovereignty to a global regulator,” said a White House official, who spoke on condition of anonymity because the negotiations were confidential.

Der Spiegel was more detailed:

"This is about the weighting of the message of this summit," the chancellor explained. The German government feels that tighter regulations are given short shrift in the draft of the closing statement the British government presented to participants. In some areas it remains too vague -- on issues like tax havens, hedge funds and ratings agencies, for example. And in others Merkel feels it is too concrete -- like on the issue of further economic stimulus.

Germany and France want to see the pledges that were made at the G-20 summit in Washington in November be implemented, Merkel said. At the time, an action plan was agreed to that would see improved oversight of financial markets. "That cannot just be left in general terms," Merkel said; instead, "very concrete considerations" are necessary. Sarkozy added that there is no time left for "grand speeches," an apparent reference to Brown and Obama. "The decision must be made today and tomorrow. The day after is too late."

This failure to agree that the global crisis requires a global legal authority superior to individual countries--which directly contradicts the "we're all in this together" music from just yesterday--will come back to haunt us.

As for regulating financial speculation, according to le Monde:

Autre bête noire de la France et de l'Allemagne, les fonds spéculatifs seront désormais soumis à une réglementation avec immatriculation obligatoire auprès d'autorités de supervision.

Les engagements des banques vis-à-vis de ces fonds seront en outre surveillés.

But, as we just saw, Washington will cede no authority to international regulators and the U.S. has a law passed under the Clinton Administration prohibiting the regulation of "les fonds speculatifs." It will be interesting to see how this contradiction gets resolved. If Washington sincerely follows through, it will mark a significant step toward reforming the global financial system. Then, "speculation havens" will no doubt crop up on various off-shore islands, and what institution will be in charge of policing them?

On the broader issue of both political and economic governance of the globe, le Monde editorialized:

les Etats-Unis, première puissance militaire de la planète, restent le centre de gravité politique. Mais, de Téhéran à Kaboul en passant par Pyongyang, tout l'atteste : Washington, même dans le cadre de l'OTAN, est incapable de résoudre seul les conflits qui secouent la planète. A la différence de son prédécesseur, Barack Obama l'assume.

Criticism of a one-day meeting is a bit unfair. The G20 made some valuable statements. Let's see how fast and thoroughly they move toward implementation.