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G20 Summit to Tackle Global Financial Crisis, But Consensus on Solution Uncertain


The G20 summit in London April 1st and 2nd aims to reach a consensus on how to solve the global economic crisis. However, there are many challenges that must be met first.

Professor John Kirton, director of the G20 Research Group at the University of Toronto, says world leaders face "a very big job across a very broad agenda."

"The first thing they have to do is to make sure that the fiscal and monetary stimulus that the G20 countries are injecting into their economies to get growth back, to provide jobs for their citizens, is enough. That it's working well. That it's targeted in the areas that will really help the most. Secondly, they've got to make sure that the financial system is working by unblocking the credit channels," he says.

That means comprehensive and up-to-date supervision and regulation of the financial industry. Kirton also warns against a knee-jerk reaction to the global recession.

He says, "They have to make sure that we don't see an outburst of vicious trade protectionism, which everyone knows punishes all concerned. But [it] is such a temptation for politicians to engage in to appear to be doing something for their voters back home."

Other challenges include meeting the Millennium Development Goals and modernizing major financial institutions.

"We need to reform the global financial architecture, particularly the World Bank, International Monetary Fund, international institutions that were designed in and for a world of 1944, but really need to be changed for the 21st Century global economy we now have," he says.

However, although the problems are shared by all at the G20 summit, getting them all to agree still won't be easy.

"When you have up to 28 leaders from very diverse parts of the world, levels of development, culture, it's very difficult to get consensus - far more difficult than it is to get in the old G8 club," he says.

Kirton also says that the current financial crisis is "characterized by a degree of complexity and uncertainty that's never been seen before."

"So in some sense, they're all in this together searching in the dark for a common answer. And I think that is a unifying bond that will pull them together," he says.

At last November's summit in Washington, the G20 did set the groundwork for modernizing the financial structure. This includes assessing financial risks not just at individual institutions, but across the whole financial sector. Kirton also says financial institutions must end a typical cycle of economic behavior.

"So, for example, when times are good and banks are making a lot of money, they should set aside more capital for a rainy day (bad times). At present of course, when times are good, they think they don't need that safety net so they put aside less. Then when times are bad, of course, they realize they need it so they start hoard their cash – exactly the wrong thing to do," he says.

Into this crisis steps the new US President, Barack Obama, who, Kirton says, carries with him great hopes and expectations. But he'll face European leaders, who may disagree with his economic stimulus plans. The unknown factor at the G20 summit is China, which has plenty of money at its disposal.

"It's difficult to imagine that even if the United States and the Europeans come to a strong consensus that they can actually solve the global problem unless China shares in that leadership," he says.

The director of the G20 Research Group expects the summit to address the needs of developing countries for at least two reasons. One is the long-standing commitment of British Prime Minister Gordon Brown to helping poor countries. And the other, Kirton says, is the understanding Barack Obama has, from personal experience, of how the crisis could affect such countries as Indonesia and Kenya. The unanswered question is: Will parliaments and congress back home follow through and release the money needed to help poor countries?

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