World leaders are under pressure to forge agreement on five key issues if this week's summit is to be a success
Tougher curbs on the financial system, including hedge funds and offshore tax havens. Keeping trade open. Reforming the institutions that have overseen the world economy for 65 years. Making sure the poorest countries are helped through the most severe downturn since the second world war. Thursday's meeting of the Group of 20 nations has much to do in a single day of summitry, and the portents are not good.
Seventy-six years ago, hopes were high that an international meeting held at the Geological Museum in London would provide a boost for a global economy mired in the deepest slump since the dawn of industrial capitalism. But hopes of a co-ordinated response to the Great Depression proved to be in vain, and for the rest of the 1930s, countries pursued their own strategies with only a minimum of co-operation.
Leaders say that lessons have been learned from past failures. The good news is that Gordon Brown's call for a global response to a global crisis has found an echo in every capital, from Barack Obama in Washington to Wen Jiabao in Beijing.
And, as in the 1930s, crisis has spawned intellectual activity, not just inside the governments of the G20 but in the thinktank community and academia. A United Nations commission led by the American economist Joseph Stiglitz is proposing a global economic council that would identify failings in the current system and propose solutions. Stiglitz would like these to include a global reserve system that is more broadly based than the US dollar and a guaranteed stream of aid to poor countries.
The bad news is that the recommendations are likely to prove too radical for the G20.
Despite the show of unity, there is a lack of agreement on each of the five big issues to be discussed by the G20. On some issues, such as climate change, Britain has had to abandon any attempts to make progress. London is now seen as part of a process rather than a culmination, with talk of a further summit in November, possibly in Asia.
The postwar international system was dedicated to unravelling protectionist measures introduced by countries in the 1930s. A commitment to free trade will feature strongly in Thursday's communique.
Pascal Lamy, director-general of the World Trade Organisation, says that fears of a new tit-for-tat trade war are well-founded. The WTO is predicting that world trade will contract by 9% this year, and notes that the two biggest trading blocs, the United States and the European Union, have been quietly increasing protectionist barriers while talking the language of free trade, according to a WTO report sent to its 153 members. "The danger today is of an incremental buildup of restrictions that could slowly strangle international trade and undercut the effectiveness of policies to boost aggregate demand and restore sustained growth globally," the report said.
Despite a call at the inaugural G20 summit, in Washington last November, for the WTO to conclude the Doha round of trade liberalisation talks by the end of 2008, it proved impossible to reconcile more than seven years of acrimonious negotiations. Differences between China and the US Congress were too acute.
The G20 now accepts that an early end to the Doha round is not possible; it will be considered a success if Thursday's summit agrees to measures that stop member states from exploiting existing WTO rules to increase trade barriers. Brown is also urging a $100bn fund that would provide export credit guarantees so that trade can be unblocked.
Plans to reflate the global economy have, if anything, proved to be even more contentious. Across the developed and developing world, the response to the crisis has been for central banks to cut interest rates and for finance ministries to cut taxes, increase spending, and borrow more. Barack Obama, who introduced an $800bn stimulus package in the US, would like other countries to do more. Angela Merkel, the German chancellor, repeated at the weekend that she would like a period of reflection so that the impact of the policy easing already in the pipeline can be assessed. "This crisis did not come about because we issued too little money but because we created economic growth with too much money and it was not sustainable growth," Merkel said in an interview with the Financial Times.
This difference of opinion is not easily managed: for Americans the scarring economic event of the past 100 years has been the Great Depression, for
Germany it has been the hyper-inflation of 1923. Until Mervyn King, the governor of the Bank of England, intervened last week to warn the government that he considered it close to its overdraft limit for public borrowing, Brown was firmly in the Obama camp. Even so, Downing Street always knew that Germany and other countries with the scope to ease fiscal policy were never going to remake their national budgets at the summit.
The Australian prime minister, Kevin Rudd, pointed out that, two weeks ago, the G20 finance ministers agreed to use the International Monetary Fund to assess what further economic stimulus would be needed around the world in 2010. He became the first world leader to say publicly that there will need to be another G20 summit this year to "actually look at what metrics, what numbers will be needed" to boost economies for 2010.
The foreign secretary, David Miliband, pointed out yesterday that the G20 countries have already pumped $20 trn into the world economy, and the aim had never been to rewrite national budgets at the summit. While papering over the cracks, this strategy has its problems. Writing in the latest Prospect magazine, Gerald Holtham, the former head of the Institute for Public Policy Research thinktank, says the countries most willing to adopt tax-and-spend policies - such as the US - tend to be those who need to save more.
With domestic economic policy off-limits, attention will focus on what should be done at the global level. Here there is consensus that the IMF lacks the necessary firepower to tackle the problems of struggling countries, with particular concern about eastern Europe.
Miliband said yesterday that the G20 would agree to boost the IMF's reserves to around $500bn, and the World Bank and other regional development banks will also be provided with extra funds.
One potential problem, however, is that some of the G20 countries with money available to replenish the IMF's reserves - China and Saudi Arabia - have only a small say in the way it is run. Critics say that new money for the IMF should come with strings attached, just as IMF help for poor countries has come with its own "conditions".
Mark Weisbrot, of the Centre for Economic and Policy Research in Washington, has said giving more resources to the IMF would be a mistake. "About 10 years ago, in the last major international economic crisis - which began in Asia - the US led a large funding increase for the IMF, and the results were disastrous. The fund worsened the crisis in Asia, mostly by attaching harmful economic and structural conditions to its lending to the countries hardest hit by the crisis, including Indonesia, Thailand, South Korea and the Philippines."
The enormous amount of taxpayer support for struggling banks will mean that reform of the financial system will be central to Thursday's talks.
All G20 countries agree that a properly functioning banking system is vital for a return to normal levels of activity, and each will commit itself to resolving the problems of bad debts.
Beyond that, pressure from France and Germany has forced the US and the UK to accept that the so-called shadow banking system, which includes hedge funds and private equity firms, will have to be regulated. There are also likely to be moves to provide a better early warning system, through an enhanced surveillance role for the IMF and greater cross-border co-operation between banking supervisors.
Reports emerging from Downing Street over the weekend underlined that Britain would like to get tougher on tax havens by making them "increasingly unacceptable and costly to operate".
The reports focus on virtually the entire list of abuses identified in the Guardian's recent Tax Gap investigation which revealed how companies are now alleged to be shifting valuable intellectual property such as patents and consumer brands into tax havens.
A key reform the government is reported to be pressing for is to tighten up the rules on transactions with tax-haven companies.
Obama, before he became president, famously said that an office block in the British-controlled Cayman Islands acted as headquarters for 12,000 companies.
The possibility of economic sanctions against unco-operative tax havens is also being trailed by Downing Street.
The threat of such sanctions was enough to make some, led by Switzerland and Liechtenstein, recently agree to accept the limited principle of tax information exchange agreements with other countries. These "TIEAs" would allow details of bank accounts operated by suspected tax evaders to be disclosed on request to foreign authorities.
But many other reforms demanded by campaigners do not yet appear to be on Brown's radar. Automatic offshore information-sharing has been rejected. So, apparently, has any rule that UK banks which accept UK state aid must cease tax avoidance. Only a voluntary code of practice is being proposed.
Summits in the early part of this decade were dominated by Africa. Brown is determined that the problems of rich countries over the past 18 months should not result in those of the world's poorest countries being kicked into the long grass, and will seek assurances that pledges made at Gleneagles in 2005 - and subsequently - should be honoured.
The UN millennium development campaign reckons assistance will be reduced by at least $4.5bn as a result of the economic crisis, which also threatens to push more than 50 million people into poverty and set back the fight against poverty by three years. This is largely because the planned growth in development in most countries was linked to growth in GDP that is now not going to materialise.
Indeed, squeezing money out of rich countries was tough even in the boom; amid fears of the Great Depression Mark II, it is proving doubly difficult.
Copyright Speakers Corner 2017