Brussels, 10/11/2010 (Agence Europe) - The leaders of the world's 20 leading economies will be travelling to Seoul, South Korea, on Wednesday 10 November 2010, for a G20 summit against a backdrop of currency spats and economic imbalance. 'All G20 countries must recognise that economic imbalances are a common concern, and that all major economies must do their part to achieve rebalancing. Current account balances should be used as an indicator to trigger an assessment of the possible root causes of impediments to adjustment' explain the president of the European Council and the president of the European Commission, Herman Van Rompuy and Jose-Manuel Durão Barroso, who will be attending the summit, in a joint letter to the G20. They explain that the European Union is introducing a strong, early-warning system in the eurozone to monitor economic imbalances. Faced with strong opposition from countries like Germany, the United States has toned down its demand for upper limits on countries' balance of payments surpluses and deficits.
In order to reduce antagonism, Asian countries have toned down their criticism of the US currency policy, preferring to focus on hoped benefits from increased growth under the US policy rather than its impact on the flood of liquidity in emerging economies. The US Federal Reserve has bought up a further USD 600 billion of US Treasury bonds to keep the its long-term rates down and this has led to a fall in the value of the dollar and a rise in the value of the euro, to the dismay of Germany, the main exporter in the eurozone. Van Rompuy and Barroso write: “In Seoul, we must give a clear political commitment to cooperative and lasting solutions to current tensions in the currency markets, to allow exchange rates to be set in line with market fundamentals and to refrain from competitive devaluation of currencies.”
Reform of the IMF. The G20 leaders will endorse the agreement on changes to the way the International Monetary Fund (IMF) is run reached by their finance ministers and central bankers last month in Gyeongju (see EUROPE 10243). By 2012, a 6% transfer in share-quotas will be made to emerging economies and underrepresented countries. The share-quotas are the financial contributions made by countries to the IMF that are used to determine voting rights. The BRIC countries (Brazil, Russia, India and China) are in the top ten contributing countries to the IMF, with China in third place after the United States and Japan. Europeans have agreed to give up two seats on the IMF's ruling body to emerging economies and underrepresented countries. “The European Union answered positively to the challenge of making the institution (the IMF, Ed.) more legitimate and more representative of the global economy”, write Van Rompuy and Barroso. Members of the IMF's Executive Board will now be elected. There will remain 24 seats on the board.
Financial reforms. The G20 summit will endorse the “Basel III” measures prepared by the Basel Committee to increase the quality and quantity of bank capital requirements by 2019 (see EUROPE 10213). “The European Union fully supports the new agreement on capital and liquidity standards (Basel III). Its implementation should be strictly monitored. We also need to endorse the policy recommendations by the Financial Stability Board” of the IMF “on Systemically Important Financial Institutions and on reducing reliance on Credit Rating Agencies”. The idea is to compile a list of some two dozen banks with global systemic impact that would be subject to closer monitoring and greater capital requirements. The EU is working on introducing a new bank tax and will try to win support for the idea of an international tax on bank transactions.
Doha. The leaders of the world's biggest economies will re-state their commitment to free trade and keeping markets open around the world. They are expected to give strong political support to rapid conclusion of the Doha trade round by calling for effort to conclude the multilateral trade talks that began at the World Trade Organisation in 2001. In a letter to fellow G20 leaders, President Obama says that they all have the responsibility of demonstrating the necessary ambition to reach an agreement.
Climate. The EU expects the G20 to find a balanced position to enable rich countries and emerging economies to find areas of agreement to ensure success at the upcoming UN conference on climate change in Cancún (29 November - 10 December 2010), as a key stage in the move to a global, legally binding deal in 2011.
Development. This is the first time that a G20 Summit will discuss development. It was requested by emerging economies with a view to facilitating trade and investment in developping countries. In this connection, the EU supports the G20's multi-annual plan and hopes the summit will give clear guidelines for the conclusion of the Doha Development Round at the WTO. (A.N./E.H./M.B. trans fl)