G20: great expectations?

Two days to go, and it’s probably time to start thinking through what to expect from the London Summit. (If you haven’t already seen it, check out our special page on the Summit – I’ll be there as one of the G20 Voice bloggers, so we’ll have updates throughout the day from the scene of the action).

By and large, expectations seem to be being managed downwards by the commentariat as well as in off the record briefings from officials.  That’s what you’d expect at this stage, as then even modest progress looks like a triumph (in much the same way that Labour Party officials always brief journalists to expect an apocalyptic showdown with the unions in the days running up to the Party Conference every September).  As the Wall Street Journal puts it,

It was supposed to be the inauguration of a Global New Deal, in the hopes of British Prime Minister Gordon Brown, a comprehensive policy response to the world economic crisis, a root-and-branch effort to reorder the way capitalism itself works. But by the time the much-heralded Group of 20 meeting of heads of government ends Thursday, it may be difficult to spot a new world order. It is already clear that the summit will mostly fall short of Mr. Brown’s original lofty goals.

Interestingly, though, one relatively upbeat note comes from Alastair Newton, who’s just published a Nomura briefing note on the summit – and who can claim rather more expertise on summits than most banker, having been head of G8 policy at 10 Downing Street from 1998 to 2000.  Newton’s bottom line: while he doesn’t expect a ‘miracle cure’ turnaround in markets or the real economy, it’s nonetheless

“just possible that we may look back on the 2 April 2009 G20 Summit in due course and see it as ‘the end of the beginning’ of the current crisis.”

So what specific outcomes does Nomura expect from the summit? First, China could announce a new fiscal stimulus at, or shortly before, the Summit; more generally, communique language on this area would be nuanced, given US-EU disagreements. Second, China – and maybe the US, Saudi and others – may provide additional IMF finance, as the EU and Japan already have. Third, some modest reform of international financial institutions, though these are seen as “of marginal relevance to the immediate crisis”. Fourth, a declaration of broad agreement on financial regulatory reform, where Nomura see the EU Larosière report as a potential blueprint. Finally, the communique will note progress to date, agree to further work, and include the “ritual denunciations of protectionism“.

That’s pretty much it: “anything significantly addition would, in our view, be a bonus”. But, Newton continues, even such a relatively modest outcome shouldn’t just be dismissed. It would mark some bridging of transatlantic differences; would probably be perceived as a success, given that expectations have been managed down; and that would in turn reinforce positive market reaction to recent pronouncements from Tim Geithner.

Former IMF chief economist Simon Johnson agrees with Newton’s list of issues, but is less impressed.  He thinks the [leaked] draft communique is “not encouraging”, and argues in particular that

the language on monetary policy and fiscal policy is completely vacuous (paragraphs 3 and 4; the Europeans won big and the US lost on these issues), and the “regulatory reform” initiative amounts to building more ornate structures (we’re to get a new Financial Stability Board?!?) on the same weak foundations that got us into trouble.  There is simply nothing substantive here that would not have happened without the G20 process; under current dire circumstances, window dressing is not a good reason to hold a summit.

As far as Johnson’s concerned, only three interesting areas are still open for discussion.  First, the amount of additional IMF financing, where he hears that the range of debate goes from $250bn to $750bn; the former figure would be ‘disappointing’ (though David Miliband has already talked about $500 billion). Second, the draft talks about raising this money from “borrowing in the markets” and from a “general SDR allocation”: keeping these “significant departures from past practice” in the communique would be good, he argues.  Third, the question of how much IMF finance comes from emerging markets wih deep pockets: China and Saudi must come up with some actual numbers here, he says.

So what’s missing from Newton’s list?  Larry Elliott and Patrick Wintour offered a good overview in yesterday’s Guardian, which looks for progress on four areas that Newton refers to – trade, stimulus, international institutions and financial institutions – and one that he doesn’t, namely development

This is mainly about aid volume, as far as they’re concerned: as they note, “the UN millennium development campaign reckons assistance will be reduced by at least $4.5bn as a result of the economic crisis, which also threatens to push more than 50 million people into poverty”. That would mark a reverse in the recent direction on aid spending: as the OECD noted yesterday, last year saw aid hit its highest level ever at $120 billion – a 10% increase on 2007 levels, taking the total to 0.30% of OECD countries’ gross national income.

Development NGOs, for their part, have a longer shopping list on development.  Aid volume is certainly top of their agenda too, but they’re also after movement on tax havens – where Summit progress is possible – less IMF conditionality, and movement on climate change and the closely related issue of green new deals. The last two are especially interesting: back in February, Nick Stern and others have called for $400 billion to be spent on green investments over the next 18 months – 20% of the $2 trillion that they expected governments to pledge; speaking yesterday, Stern reiterated his pressure on G20 leaders to send a strong signal on climate change.

So that, more or less, is the range of issues that might or might not be on the table.  In a follow-up post, I’ll set out my own hopes and expectations…