WASHINGTON (AFP) — Leaders of the Group of 20 richest economies and emerging economic heavyweights will hold their first meeting in Washington on Friday to craft a joint strategy to deal with the rapidly spreading global financial crisis.
A very reluctant host initially, the United States now wants a plan of action to overhaul the international financial system to come out of the summit, which starts late Friday with a working dinner at the White House and ends Saturday.
“The leaders attending this weekend’s meeting agree on a clear purpose: To address the current crisis, and to lay the foundation for reforms that will help prevent a similar crisis in the future,” US President George W. Bush said on Thursday.
The summit is expected to set down a number of economic goalposts and a dateline to prevent the ongoing financial meltdown from turning into a long recession.
The crisis broke out a year ago when the US real estate market went bust, and spread to the financial sector when it was swamped by subprime mortgages turned sour. A cash crunch in the banking sector dried up the credit market in mid-September, hurting businesses and sending stock markets crashing.
Commitments on an action plan won’t be easy to make for the outgoing Bush administration, however, since the president will be ending his eight years in office in January. His successor, Democrat Barack Obama, is set to replace him at the White House on January 20.
In a speech on the economy in New York City on Thursday, Bush in a show of good will outlined some thinking points: improve banks’ risk management practices, improving accounting rules for securities so that their “true value” is clear and harmonizing accounting laws among nations.
The United States would also like the International Monetary Fund and World Bank to undergo reforms to give emerging economies a greater voice.
The summit could also take a stab at harmonizing the G8 and the G20, which group the richest countries in the world.
The Bush administration, however, is adamantly opposed to a world regulating authority, and rejects major government intervention on the markets as well as fingers that point to the United States as the culprit of the current crisis.
The Europeans, especially the French, believe the summit will just be a starting point and will not lead to another Bretton Woods II, the 1944 agreement that gave rise to the current global financial structure.
“Of course these are going to be difficult talks,” said German Chancellor Angela Merkel in an interview the Sueddeutsche Zeitung published Thursday.
She said it was crucial that the first steps towards improved financial regulation are taken soon, as Germany, Europe’s foremost economy, has just gone into a recession that will likely spread to every other rich nation next year.
“We have to implement the first steps in the coming months. The target is that in the future all areas, all products and all businesses are properly regulated and supervised,” Merkel said.
Several products and financial institutions are largely if not completely unregulated at present: hedge funds, credit default swaps (CDS) and rating agencies.
France, who advocates increased oversight of international financial transactions, would like to have tax havens added to the list.
The G20 summit will also likely discuss coordinated efforts to revive the global economy, after China unveiled a four trillion yuan (586 billion dollars) economic stimulus plan.
Created in 1999, the Group of 20 richest economies and emerging heavyweights account for 85 percent of the world economy and about two-thirds of its population.
Its members are the United States, Germany, Japan, France, Italy, Britain and Canada, the European Union, Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.
International Monetary Fund and World Bank officials are also due to attend.