Brussels, 28/06/2010 (Agence Europe) - The final G20 press release is a clever balancing act between the need to support economic recovery and the need to cut public spending - both crucial for the United States and the European Union. Meeting in Toronto on 26-27 June 2010, the G20 also reaffirmed the need to prevent banks from taking excess risk but did not agree on introducing new taxes although each country is free to decide to introduce its own bank tax individually if it so desires.
Economic recovery and sound budgets. After long negotiations, the leaders managed to agree on a statement, stating for example that: “The G20's highest priority is to safeguard and strengthen the recovery and lay the foundation for strong, sustainable and balanced growth, and strengthen our financial systems against risks. We therefore welcome the actions taken and commitments made by a number of G-20 countries to boost demand and rebalance growth, strengthen our public finances, and make our financial systems stronger and more transparent. These measures represent substantial contributions to our collective well-being and build on precious actions. We will continue to co-operate and undertake appropriate actions to bolster economic growth and foster a strong and lasting recovery”. The G20 commented that: “Increasing global growth on a sustainable basis is the most important step we can take in improving the lives of all of our citizens, including those in the poorest countries. We are committed to taking concerted actions to sustain the recovery, create jobs and to achieve stronger, more sustainable and more balanced growth. These will be differentiated and tailored to national circumstances.” Countries facing big budget challenges will have to speed up their budgetary correction processes. “Building on our achievements in addressing the global economic crisis, we have agreed on the next steps we should take to ensure a full return t growth with quality jobs, to reform and strengthen financial systems, and to create strong, sustainable and balanced global growth.” The G20 pledged to halve their budget deficits by 2013 and stabilise or cut public debt by 2016. Japan, whose public debt stands at 200% of GDP, is exempt from this aim (which is a non-binding statement of intent).
Reforming financial regulations. The world's leaders discussed changes to the global banking system in a four-pronged approach: (1) a strong regulatory framework for bank capital and liquidity. Expected at the next G20 summit in Seoul, South Korea, the new capital requirements to be introduced by 2013 will include varying transition periods in order to avoid nipping recovery in the bud. Compulsory leveraging ratios will be introduced. (2) Stronger supervision. The Financial Stability Board (FSB) will issue recommendations this autumn at the Seoul summit on how to grant national supervisors greater powers and resources, particularly at the early stages. (3) Introducing restructuring systems to allocate losses in the event of a bank collapse to protect taxpayers, ensure continuity of critical financial services and prevent panic. The FSB is instructed to issue recommendations on how to cut the moral hazard constituted by too-big-to-fail financial institutions. (4) “Robust, transparent and independent” analysis by international institutions and peer assessment of reforms introduced by G20 countries. Credit rating agencies are urged to boost transparency, improve the quality of their ratings and avoid conflicts of interest. The IASB and FASB working on convergence of the IFRS accounting standard with the rules in place in the US should redouble their efforts to complete their work by the end of 2011.
The G20 “agreed the financial sector should make a fair and substantial contribution towards paying for any burdens associated with government interventions, where they occur, to repair the financial system or fund resolution, and reduce risks from the financial system.” Faced with opposition from developed countries like Australia, Canada and Japan and emerging economies like Brazil and India, whose financial systems have not suffered very much from the crisis, the G20 decided against the introduction of a bank tax or levy by all countries. “We recognised that there are a range of policy approaches to this end. Some countries are pursuing a financial levy. Other countries are pursuing different approaches”. Policy approaches should protect taxpayers, cut financial risks, keep lending flowing in the economy, take each country's characteristics into account and encourage fair rules. Before the summit, the EU said it would introduce a bank tax even if its G20 partners did not agree and it now remains to be seen how enthusiastic EU member states are about the matter.
Disappointed at the outcome of the Toronto summit, the Greens at the European Parliament say that eurozone countries meet all the criteria for introducing a tax on financial transactions to raise income to help fund the Millennium Development Goals in developing countries to help poor countries deal with the impact of global warming. Similar noises were made by the PES Group, whose chair Martin Schulz of Germany said that the EU should go ahead and introduce both a bank tax and a tax on financial transactions. The leader of the liberal MEPs, Guy Verhofstadt, said it was regrettable that so many of the US and EU's partners do not understand how useful a tax on banks would be for the global economy. (A.B./M.B./transl.fl)