Fallout: The Financial Crisis

A Toronto G-20 summit review

Marketplace Staff Jun 28, 2010

TEXT OF INTERVIEW

Tess Vigeland: It was all smiles in the final photo shoot at end of the G-20 summit in Toronto yesterday. The summit declaration was cordial. It contained broad agreements on issues like stimulus spending and bank regulation. But the communique took 45 hours to draft, so it’s not all sunshine and light.

Marketplace’s Stephen Beard is with us from London. Hi Stephen.

Stephen Beard: Hello Tess.

Vigeland: So we heard a lot about a rift between the U.S. and Europe in the run-up to the summit. Did we settle some of those differences here?

Beard: No. I think the leaders have agreed to disagree. The communique papers over the obvious cracks in the G-20, over this question of “to cut or to spend?” It commits the rich countries to cut their budget deficits in half by 2013, but the U.S. and some developing countries have succeeded in getting a commitment in there to growth and recovery as well. A commitment to continue the stimulus spending, if need be. So, a government that failed to cut its deficit in half by 2013 could claim that it was worried about derailing its recovery, and that would let it off the hook.

Vigeland: So a rule, with a whole bunch of exceptions.

Beard: Very much so.

Vigeland: What about bank regulation, another big source of disagreement among some of the G-20 members? Those differences resolved yet?

Beard: They have agreed to raise significantly the amount of capital that banks will need to hold, so they can withstand a crisis without running to the tax payers to bail them out. But there are no firm details or numbers yet. This actually, to be more accurate, an agreement to agree at a later date. We’re going to have to wait until the G-20 summit in Korea in November for the full story. And there are still a lot of differences on the issue of banking. There’s been no agreement on a special bank tax, for example, something that the Europeans are pushing for.

Vigeland: So what are the veteran summit watchers saying about the Toronto G-20? Failure? Success?

Beard: Not a failure, no. But the consensus view seems to be that it’s been nothing as successful as the G-20 summit in London last year, when there was almost a universal agreement on the need for the stimulus spending. But Stephen Lewis, chief economist of brokerage house Monument Securities says that level of agreement between the G-20 leaders was only natural back then, at the height of the crisis.

Stephen Lewis: It was the threat that really brought them together, which united them in a joint purpose. Now that is gone. They’re going their separate ways, pursuing the policies, which they think are best for their own countries.

Vigeland: But at the very least, Stephen, the summit seems to have been reasonably amicable? Everyone playing well in the sand box together?

Beard: Yes, a small mercy. And helps explain why financial markets have been relatively calm today. There’ve been any sign of an open disagreement or a widening rift, it could’ve been disastrous. Stephen Lewis claims that it was a rift at a G-7 meeting in 1987, which helped trigger the stock market crash that year. So, the markets seem — at least in Europe — to have been reassured by the appearance of unity and agreement, even if beneath the communique that’s not the reality.

Vigeland: Marketplace’s Stephen Beard joining us from London. Thanks so much.

Beard: OK Tess.

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