September 27th, 2009
12:24 PM GMT
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LONDON, England - When it comes to the number three, there are two conflicting philosophies: The first says everything comes in threes, the second says third time lucky (or unlucky.) This weekend the G-20 leaders have been meeting for their third meeting in a year.

G-20 leaders are all smiles, but for how much longer will the unity last.
G-20 leaders are all smiles, but for how much longer will the unity last.

For an organization that had never met before at heads of state or government level, this is something of an achievement. But then rarely have they had to ride to the rescue of the global economy that was about to collapse.

Twice before when they met, they agreed to halt the blame game of how we got into this mess. They worked together to get us out of it. This was no mean feat since it involves countries from communist China to capitalist America and all shades of political persuasion in-between. Their ability to coordinate and cooperate has been noted time and again as one of the great advances in summitry.

In Washington last October, they ignored the fact President George W. Bush would be out of office within months and built a plan, calling it "The Washington Action Plan." By the London meeting at the beginning of this year, trillions of dollars had been spent and the leaders met to coordinate how their posh-sounding plan was performing. They tinkered and tweaked and gave some more money to the IMF and carried on cooperating. They didn’t have any other choice. Now, with Asia decoupled from U.S. and European growth, what next?

Everyone agrees it is too soon to take away the stimulus that is keeping developed economies afloat. Everyone agrees that they will have to coordinate their exit strategies when that time arrives. Oh yes, they even agree banks need to have some strict reform of the rules (and, yes, that includes big bad bonuses.) This is all done on the basis that "we are not letting this happen again."

But the issue is whether they can keep agreeing. France, for instance, is keener on stricter regulatory reform than, say, the UK. Britain has much to lose if Europe’s financial headquarters, the City of London, becomes over-regulated. French Finance Minister Christine Lagarde told me that restricting bankers’ bonuses was a symbolic way of proving no more business as usual. Only by imposing discipline and regulatory systems could we reign in the financial world, she said. Such a view of course, is very much at odds with what might be expressed in Washington.

The G-20 now finds itself rather like a group of passengers who have just been rescued from a sinking ocean liner. When facing disaster, all classes from captain’s table to steerage, share laughter, friendship and love. Now as the good will of rescue starts to disappear, old rivalries resurface and political ideologies put to one side are restored.

Which brings me back to my first point. Can the G-20 hold it together for a third time? They probably will, simply because this crisis is not over yet. Longer term, as the G-20 presidency passes from the UK to South Korea, the axis of power shifts. Well, I have more doubts.

Crises breed cooperation. Recovery may well breed resentment. Even if the third summit works, don’t bank on success for the fourth and beyond.



soundoff (13 Responses)
  1. Andrew

    The contradictions seems to be between France & UK, which are actually members of G7, which represent just 35% of world GDP and less than 15% of world population. Besides, there is not much growth in G7. So G7 is dead. Agreed G20 is quite a big group.

    The best would be G7 + BRIC + South Korea + Mexico and South Africa. That is G14. These countries represent more than 75% of world GDP and the number is manageable.

    September 27, 2009 at 2:33 pm |
  2. Mr H

    Financial regulation is a must for the world economy to perform without fear of depressions like one right now.

    It is difficult to understand the psyche of industrial (and by far more experienced) nations like the UK and the US who may not be supportive of curbing executive wages for example. What has happened in the past, with uncapped wages/packages for top performers, is now being seen as a 'given' reward for 'performance'. This uncapped greed has led to institutions driven by individuals led by their desire to increase their personal wealth to a level not seen before. This must end somewhere.

    How much money does one need to life a satisfactory (rather more luxurious than your assistant ?) There has got to be limit to this all.

    September 27, 2009 at 3:06 pm |
  3. Patricio Sorichetti

    An interesting article!!! Cynics will certainly point to the many failures of international cooperation in the last decades as "proof" that international cooperation is impossible in the long run. However, although cooperation between nations has often been difficult, we must remember that it counts some spectacular successes too. For instance, many world leaders ( W. Churchill among them) thought that European cooperation agreements (in particular between France and Germany) would not last. In the Americas, multi-lateral agreements such as NAFTA and Mercosur have proven their worth (and resilience!) during very serious crisis in the last decades
    In addition to the current financial crisis, the huge challenges that lie ahead in such diverse areas as global warming, WMD proliferation, terrorism, water supply, food security and mass migrations, are of such magnitude that only be successfully addressed through long-term cooperation and mutual trust between nations. If world powers and developing nations alike return to "business as usual" in international politics, lured by a modest improvement in economic indicators (that could prove itself to be merely temporary!) then the next global crisis will be much more severe.

    September 27, 2009 at 8:27 pm |
  4. Andreas

    I don't really see how the big bonuses are a cause per se. Sure, they led to greed, which led to excessive risk taking. But that's a rather convoluted chain of logic. No bank management in its right mind would have given those bonuses if it had known exactly how much risk the players were taking. They were endangering their employers' very existence. Hardly worthy of reward. Better controls on procedures are the way to go. Perhaps regulators should know what the banks are doing? Today the regulators lag behind terribly. Which top student wants to work for government if you can make 10x as much working in private industry. Lesson: pay financial regulators on par with bankers, including bonuses.

    Capping salaries is a terrible idea and sounds to me like pandering to the masses. (For the record, my salary and that of my wife are not of the astronomical variety so no hidden agenda from my part). Good performance should be rewarded in any industry.

    The thing to focus on is how to MEASURE good performance. This should include penalties for excessive risk taking. But arbitrarily limiting bonuses will just lead to higher salaries. (This is already happening.)

    I am uncomfortable with government regulating private companies to such a degree. It should be up to the shareholders and managers how much the employees are paid. If someone wants a vote, let them buy stock and own a part of the action (and the risk).

    Bottom line, it is important to motivate people, and salaries are the primary means of doing so. Rewarding top performers is good for companies.

    Another fact: banks MUST take risks in order for the economy to do well. Venture capitalists MUST take risks on unproven companies, or there will be little revolutionary innovation. When Apple or Microsoft started, investing in them was quite risky, and look at them now.

    Mr. H said:
    "How much money does one need to life a satisfactory (rather more luxurious than your assistant ?) There has got to be limit to this all."

    Why must there be a limit? Who should set said limit. Any attempt at draconian limits on salaries society wide has led to disaster. Just look at the communist block. Rewarding performance is a must for a functioning economy. Are there risks? Sure. Should they be managed? Of course. But without risk there is no reward. If someone is more clever, more motivated, harder working, let them have more. If that person is one in a million (think Richard Branson or Bill Gates) let them have even more. Heck, they certainly earned it, and note that their paths were full of risks. They could have lost everything several times in their early careers.

    September 28, 2009 at 2:08 am |
  5. ilie

    i am from eastern europe, and for me this subject is quite clear.
    it is not important to linit the bankers benefits but to put into
    force real regulations not to create fake money trough
    finanacial engeneering . if somebody is tryig to sell forged notes
    sooner or later is arrested,
    for many years the banks created worthless papers sold for real money and now all of us we are paying the bill.
    lets not forget that hard work and inovation creates value.

    September 28, 2009 at 4:49 am |
  6. Derick

    The bonus cuts are just a symbolic way of telling the public the government cares about income inequality and are intending to put the blame of the recession on the executives and bankers, cutting their income. Realistically, these do nothing but as a way of appeasement.

    Despite what anyone says about this, the G20 is a heck more useful then G8, especially in the terms on globalisation, economic integration and environmental sustainability, all vital issues for the future.

    September 28, 2009 at 1:45 pm |
  7. varsha

    It is a tough job to get a balance between individual efficiency and social equity. If we stop paying an individual proportionate to his contribution in value creation, he will be less motivated to go out of the way to create value for his organisation, which will bring mediocrity and reduce efficiency of overall organisation.
    On the other hand, if unregulated, an shrewd individual will go on accumulating wealth by hook and crook, whether he actually needs it or not, and this will lead to skewed distribution of wealth in the society, which is actually happening these days.
    Neither capitalism, nor communism is the perfect solution to this inequitable society thus created. Somewhere in between, lies the solution.

    September 28, 2009 at 6:01 pm |
  8. Ralph

    Do you know that Poland is now the only European Union economy with positive growth? The country's GDP grew by 1.1 percent in the second quarter in year-on-year terms, up from 0.8 percent in the first quarter. In the first half of the year, the countrys's GDP expended by 1.0 percent.

    September 28, 2009 at 7:40 pm |
  9. Digmen1

    I think the G20 is a good idea. As a westerner, we have to become more global and the up and coming large economies have to have a say in world affairs and the economy.
    I look forward to a time when wages are roughly the same world wide.
    Can someone tell us about these bonuses. We keep hearing that they are too high ! But what are they. Why do they need bonuses, just to do their job.

    September 28, 2009 at 9:20 pm |
  10. Terry Aust

    Bonuses are intended to align the interests of the managers of the business with the interests of the owners of the business.

    It is possible that the bonuses are doing their job. What percentage of shareholders complained about the direction the firms were taking in the boom?

    If I am correct that the fault is with the shareholders this should be capble of correction.

    There is a long history of finacial crisis dating back to around 1450. Thus it should be possible for financial academics to come up with good material for educating shareholders.

    The problem is how do we motivate the educators to meet the need of shareholders–more bonuses?

    October 5, 2009 at 8:45 pm |
  11. Hans Doller

    ...greed – greed-greeeeeeeeed...
    http://fineartamerica.com/featured/government-hans-doller.html

    October 16, 2009 at 12:56 am |
  12. kamal khan

    EVERYONE IS NOT LOOKING AT THE USA & UK. BOTH THESE COUNTRIES ARE MUCH MORE VENERABLE TO DEFAULT AND IN A SERIOUS CONDITION VIZ A VIZ SPAIN OR HUNGARY OR PORTUGAL. THE LATEST IS THAT EVEN THE GOVERNMENT'S HAVE STARTED TO "COOK" THE FIGURES. FOR INSTANCE THE GROSS EXTERNAL DEBTS/LIABILITIES OF USA IS OVER US$ 15.377 TRILLION AND WITH HIGH UNEMPLOYMENT AND SHRINKING REVENUES GUESS THE TWIN DEFICITS ARE GOING TO BE HIGH. UK IS IN EQUALLY BAD SHAPE. THE SPOTLIGHT HAS PURPOSELY BEEN SHIFTED AWAY FROM THE TRUTH/FACTS TO GREECE AND EURO. USA I GO EVEN SO FAR AS TO STATE USA MIGHT BREAKUP IN THE NEXT 10 YEARS.

    June 8, 2010 at 6:41 pm |
  13. carlos pereira

    The predator capitalist (The RAT), is totally OBSOLETE. Humanity dont have a chance (if they have allready ANY), meanwile there is Democracy instead of a iron hand. The earth need real kings or dictators to face the RAT in the last drama who is unfolding in front of our eyes
    Carlitos-Chile

    December 1, 2010 at 5:11 pm |

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