President Obama and French President Nicolas Sarkozy are among the world leaders who will gather in Pittsburgh on Thursday and Friday for a summit of the Group of 20 industrialized and developing economies. At the top of the agenda is the global economic recovery.
President Obama and French President Nicolas Sarkozy are among the world leaders who will gather in Pittsburgh on Thursday and Friday for a summit of the Group of 20 industrialized and developing economies. At the top of the agenda is the global economic recovery. Thierry Chesnot/AP
Leaders of the Group of 20 industrialized and developing economies gather in Pittsburgh on Thursday and Friday to focus on ensuring long-term economic stability after last year's global economic meltdown.
At the top of the G-20 summit agenda is an attempt to correct the mistakes that led to the worst economic crisis since the Great Depression — among them a failure of regulation.
Most of the headlines in the run-up to the meeting have involved plans to rein in the huge salaries and bonuses paid to bankers and traders. It's a cause that resonates in every country, says Ted Truman of the Peterson Institute for International Economics.
"Every political leader and many business leaders have declared themselves outraged, and it plays well in the political process," Truman says.
French President Nicolas Sarkozy has proposed capping compensation for bankers.
Dan Price, President Bush's chief aide at December's G-20 summit, which met in Washington to fashion an emergency response to the global financial crisis, says Sarkozy's proposal is a distraction.
"Fortunately, President Obama and his advisers are on record opposing that, and rightly so," Price says. "So, as I say, the final risk is the possibility ... that something kind of hijacks the attention and becomes a distraction from the important work of reform."
The G-20 leaders will likely endorse a set of compensation guidelines, without caps. They will also likely address the issue of requiring banks to hold more capital, which would cushion against losses so banks remain solvent when things go bad.
For the Obama administration, the most important work of reform is addressing global imbalances that U.S. officials believe set the stage for the crisis.
For instance, in the years before the financial meltdown, countries such as the U.S. and Britain consumed too much and saved too little, while big export machines like China and Germany saved too much and didn't consume enough. Their huge savings surpluses helped create a huge pool of cheap money that led investors to take too much risk.
The U.S. wants the G-20 countries to agree to get their savings and consumption in closer balance.
Nick Lardy, also of the Peterson Institute, says that for countries like China and Germany, that would mean increasing their consumption and relying less on exports for growth. For the U.S., he says, it's basically the opposite: The U.S. will be saving more, and U.S. consumers won't be the global consumer of last resort as they have been for the past couple of decades.
Many of the G-20 nations, including China, agree this rebalancing is a good idea, in principle. But the Chinese are leery of signing up to meet specific targets, Lardy says.
"They've adopted a lot of policies that will help move them in that direction," he says. "But I don't think they really have the confidence yet that they'll be able to sustain that.
"So they're very reluctant to sign up for an international agreement that would constrain them and might cause them to have to adopt policies that might lead to slower growth."
Truman, a former Treasury official who helped the Obama administration prepare for the previous G-20 meeting this year, says that likely means no targets. Instead, he sees a role for the International Monetary Fund in keeping track of how the countries are doing. He also sees leaders at future G-20 meetings reviewing their own progress.
A global framework for more balanced economic growth might create more stable global growth, but history suggests the odds of implementation are low. Similar frameworks have been tried several times before in the past 25 years, with little success.