Here in DC waiting for the G20 central bank governors and finance ministers meeting to end. There have been no actual cries of pain and bodies thrown out of the room as yet, but I think it’s safe to say that agreement over the vexed issue of taxes on banks’ balance sheets and/or profits is not going to be resolved this weekend. The Canadians at least have some moral authority on their side when they point out that their banks didn’t fail during the crisis, so why should they adopt the preferred solution of those whose banks did?
One thing strikes me, though. As we all know, the baton of global governance has passed from the G7 to the G20, sign of the rising power of Asia and Latin America, etc, etc. But this subject – the one that is most vexing and dividing them at the moment, except perhaps exchange rates – is a pure G7 issue. Few other countries’ banking sectors are big and developed enough to try to steal business from London or New York or Frankfurt or Paris or Tokyo as a result of new bank taxes, and those that might conceivably be – Singapore, Switzerland – aren’t in the G20 either. The G20: not a governance panacea. Who’d a thought it?
Should we feel sorry for the International Monetary Fund? Quite often the answer is yes. The Fund gets passed an international hot potato to write a report about because countries cannot agree; it then writes an equivocal report; and then gets it in the neck when – surprise, surprise – countries do not like the findings.
On the international tax on banks two of these three features apply. The Fund was asked by the Group of 20 to investigate how to make banks contribute to the taxpayer support they enjoyed when there was no consensus at all last September; and countries such as Canada and Japan hate the Fund’s report. But in this instance, the Fund did not write an equivocal report. The leadership of the IMF are fully signed up to the principle of an international tax on banks and have been staunch advocates of taxing banks for some time.
As the report says:
“Expecting taxpayers to support the sector during bad times while allowing owners, managers, and/or creditors of financial institutions to enjoy the full gains of good times misallocates resources and undermines long-term growth. The unfairness is not only objectionable, but may also jeopardize the political ability to provide needed government support to the financial sector in the future.”
The big question is whether a new tax on banks (or two new taxes as the IMF is proposing) will ever happen. Read more
This letter the other day from Barack Obama, Gordon Brown, Nicolas Sarkozy, Lee Myung-Bak and Stephen Harper looks at first sight like the usual bland exhortations for everyone to do better. (Why didn’t Angela Merkel sign, btw? Too busy with Greece?) But the semiotics are a bit more complex. The bit about “We all understand that ongoing trade, fiscal and structural imbalances cannot lead to strong and sustainable growth” looks pretty much like a pointed jab at China.
So does this mean the currency wars are going to break out in the G20? Since the grouping is supposed to work on consensus, it has generally shied away from arguments about exchange rates, which have the potential to blow up any meeting or institution in which they take place. Throwing them into the mix will make G20 meetings a lot livelier, at least. I’m not convinced it’s wise, though, for a joint letter apparently aimed at China to be signed exclusively by a gang of rich countries. If the US wants to use the G20 to put pressure on the Chinese, it will have to get on board emerging market countries also suffering from renminbi undervaluation, Brazil being the obvious example. The last thing the US wants is to replicate the unhelpfully rigid rich-country-vs.-poor-country divisions that have blocked progress in the WTO.
In a recent speech, Mervyn King, governor of the Bank of England railed against the inconsistencies of national recovery strategies, saying that, “a present there is no political mechanism for achieving that consistency”.
While he praised the G20 process so far, he added:
“Looking further ahead, the legitimacy and leadership of the G20 would be enhanced if it were seen as representing views of other countries too. That could be achieved if the G20 were to metamorphose into a Governing Council for the IMF, and at the same time acquire a procedure for voting on decisions.”
In an interview with the FT, Read more
Something is afoot in global currency negotiations. President Sarkozy yesterday attacked global “currency disorder” and pledged to make currencies a central theme of France’s presidency of the Group of 20 in 2011.
I know many people will roll their eyes and say, so what’s new. This reaction is totally justified by the standard G7 ritual, loved by all the meeting’s followers.
Before a meeting, the French finance minister or president will make a stink about currencies and overvaluation of the euro, saying that this will be a key topic on the agenda on the next group of seven meeting. Then the meeting comes along. Currencies are not on the agenda. They are not talked about. The G7 then issues the same empty statement about currencies. Read more
Gordon Brown has just tried to upstage the G20 finance ministers meeting by reheating the idea of a global levy on financial transactions – a tobin tax of sorts. His words were rather more cautious than the spin and this idea is still going absolutely nowhere, writes Chris Giles of the Financial Times. Read more
Pity the poor finance ministers and central bank governors of the Group of 20 leading countries. They have to hike up to St Andrews in Scotland on Friday, with ghastly weather predicted, to hold a pretty pointless meeting writes Chris Giles of the Financial Times Read more
The G7 communique urges China to let its currency appreciate. The logic of the G7′s position is fine, says Chris Giles of the Financial Times, but it has said it before, China does not agree, and so it is an entirely toothless statement. Read more
The G7 is dying as finance ministers and central bank governors prepare to meet in Istanbul tomorrow. Officials are giving obituaries, but the G7 will have a last hurrah writes Chris Giles of the Financial Times. Canada has had a tantrum and insisted the baton does not pass to the G20 until it has had its turn in the chair next year. Read more
The thing that really stood out from Barack Obama’s press conference was his vow not to return to the bad old ways of “boom and bust”.
Having heard Gordon Brown overuse that phrase for more than a decade, it is too much to hear the same from Obama. The words blew up in Brown’s face once the crisis started. Read more