In the wake of the two G20 summits in November 2008 and April this year, the spotlight has moved away from the crisis management in the immediate post-financial-crisis period, including the major economic recovery packages. The G20 states are now focusing on stabilising the financial markets. They have reached a consensus on the goals they are pursuing: The markets are to become more secure, the banks more stable, and economic activity more sustainable.
"Every financial market product, every financial location and every financial institution must be regulated – worldwide,” demanded the Chancellor. Financial market regulation must remain the top priority. The momentum of the international community must not be lost before the global financial system is reformed. "For this reason we will be urging that this does not come about,” she stated clearly.
Current plans would require major credit institutes to have larger reserves of their own before they enter into high-risk ventures. Many international banks are so interwoven with the fabric of the markets that they are vitally important for the functioning of the entire financial system.
If these institutes get into economic difficulties they are in future to be in a better position to help themselves, if necessary with the assistance of an institutional framework put in place to deal with precisely such a scenario. Experts also speak of an international "bank hospital”. Banks must never again be able to blackmail governments, as the Chancellor underscored several times before leaving for Pittsburgh. The tax-payer must not be left to pick up the tab for shoring up or dealing with ailing banks that are vitally important to the financial system.
Focus on financial market reform
The scene was set for reforming international financial institutions and introducing more effective regulation at the London Summit in April this year. At the same time the international community provided the International Monetary Fund (IMF) with another 500 billion dollars as well as with funding to enable the IMF to extend low-interest loans to the poorest countries in the world.
Now it is time to take stock and see to what extent the actions agreed to reform markets have already been put into practice. Concrete improvements can already be seen as regards supervision of the powerful rating agencies. Good progress is also being made with the regulation of high-risk hedge funds.
Regulations for common economic activity
The idea originally mooted by the Chancellor of a charter for sustainable economic activity has since been adopted as the official position of the European Union. The charter is to anchor sustainability as the fundamental principle of the global economy, under the auspices of the United Nations.
Four European states (Germany, France, the United Kingdom and Italy) will be attending the G20 summit in the USA, with the brief to represent the interests of all 27 EU member states. A special summit was held last week, at which the EU’s joint position was hammered out.
"Europe is well prepared for this G20 summit in Pittsburgh," said the Chancellor, satisfied. The Federal Finance Minister too praised the "excellent preparations” of the EU. Now the measures listed must be translated into concrete terms and put into practice, he said.
Resistance is already emerging on Wall Street and in London’s City, where there are moves afoot to voice their own interests, according to Peer Steinbrück. Along with the Chancellor he demanded that politics have priority over the interests of banks. "You cannot expect a dog to guard the sausage stocks,” as he put it.
The Chancellor, the French President Nicolas Sarkozy and the British Prime Minister Gordon Brown had already called for acceptable executive pay in a joint letter. They would like to see bonus payments made dependent on the success of the company in future. They also advocated more transparent remuneration systems and tighter controls.
The Group of Twenty (G20) embraces the world’s 19 most important industrialised countries and emerging economies as well as the European Union. It was founded in 1999. The G20 is an informal forum which cooperates on issues relating to the international financial system. They are currently meeting in Pittsburgh (24 - 25 September).
