As the Group of 20 summit began today in London, German Chancellor Angela Merkel and President Nicolas Sarkozy of France are pressing their case for a tougher crackdown on traders and lenders, in contrast to President Barack Obama’s view that there is “enormous consensus” to overcome the deepest economic slump since World War II.
The summit marks a “unique chance” to “thoroughly” change the financial system, Merkel, who faces elections in September, said at a news conference in London yesterday. “That’s why we’re being a bit tough.”
A failure to strike a pact would deal a blow to the summit’s aim of identifying ways to end the recession and prevent a repeat of the financial collapse that caused it. At the top of the agenda is a regulatory framework to rein in hedge funds, derivatives trading, executive pay and risk-taking. Nations remain divided about how much more stimulus is required to spur the global economy as well as about naming tax havens and how far to go in overseeing hedge funds.
“It’s not at all clear why Sarkozy and Merkel are making such a show,” said Morris Goldstein, a former economist at the International Monetary Fund and senior fellow at the Peterson Institute for International Economics in Washington. “On regulation, the differences really aren’t that big.”
Geithner’s Effort
U.S. Treasury Secretary Timothy Geithner wants to bring hedge funds, private-equity firms and derivatives markets under federal supervision for the first time. A new systemic-risk regulator would have power to force companies to increase their capital or cut their borrowing, and authorities would be able to seize them if they came unstuck.
“There is a very strong consensus for broader, stronger, higher standards so the world never faces a crisis like this again,” Geithner said in a Bloomberg Television interview yesterday. “The approach that all these countries are going to come together and support is that we agree on higher common standards for oversight.”
Protests are set to continue today after demonstrations yesterday in London’s financial center. Demonstrators clashed with police outside the Bank of England and broke into a Royal Bank of Scotland Group Plc branch. Police in riot gear, on horseback and with dogs moved in to surround demonstrators who smashed windows and entered an RBS branch.
Fine Print
Among the leaders, the effort to reach consensus may struggle over the fine print as the Europeans pressed for as many clear agreements as possible.
“It’s time to lay the foundations of regulation in the 21st century,” Sarkozy said, adding that tougher regulation is “non-negotiable.”
Merkel said several drafts of the summit conclusions are in circulation, and that work still needs to be done to clinch a final agreement.
Sarkozy said the summit draft doesn’t do enough to attack tax cheats and there must also be a “global decision” to crack down on traders’ bonuses. Another concern of the euro-area’s biggest countries was that not enough hedge funds will be subjected to oversight.
Last-Minute Fight
“In the current state of things, the proposals don’t suit France or Germany,” Sarkozy said on Europe 1 radio yesterday. “No agreement is secured. I know by experience that we will need to fight until the last minute.”
The disagreements may force the leaders to paper over differences with a watered-down agreement. U.K. Prime Minister Gordon Brown said yesterday that nations “must stand united in our determination to do whatever is necessary.”
Expectations “are being managed down,” Stephen Roach, Morgan Stanley’s Asia chairman in Hong Kong, said in an interview. “There seems to be no real appetite for the leaders to deal with the imbalances in a broader global economy or their own individual economies,” he said. “This is not going to be a breakthrough summit.”
The deepening slump has led to a split over how much governments need to spend to reverse the tailspin. Germany and France have led a European Union response that the 400 billion euros ($530 billion) the EU has approved should be enough and any more would drive debt too high.
The recession has worsened since the G-20 leaders last met in November in Washington.
Slump Forecast
The Organization for Economic Cooperation and Development said in Paris that the economy of its 30 members will contract 4.3 percent this year and predicted unemployment in the Group of Seven will reach 36 million late next year. The World Bank lowered its growth forecast for developing countries this year by more than half to 2.1 percent.
“The only thing I wish for is that all the presidents gathered here have the maturity to understand the every day that passes without a solution to the crisis, more people are going to suffer,” Brazilian President Luiz Inacio Lula da Silva told reporters after arriving in London.
G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union. Officials from Spain and the Netherlands are also present.
To contact the reporters on this story: Edwin Chen in London at echen32@bloomberg.net; Tony Czuczka in London at aczuczka@bloomberg.net
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