G 20.special report.financial times.november 2011

Canned heatG20 SUMMITFINANCIAL TIMES SPECIAL REPORT | Thursday November 3 2011 Where Victorian aristocrats trod, modernday politicians follow Page 4 www.ft.com/g202011 | twitter.com/ftreportsDark outlookpiles pressureon leadersA cooling world emerging economies were in the balance sheets of still growing rapidly and European banks that areeconomy, the euro had experienced little fall- sitting on these assets.crisis and trade out from the slowdown in The issues are inextrica- almost all advanced econo- bly linked and must beimbalances provide mies. addressed as a whole. Thisa grim backdrop to Six weeks on, the world is recognised by both the Anti-G20 placard in Nice, France this September outlook seems darker, and French and German govern-talks in Cannes, Monday’s announcement ments’ commitment to a Bond spreads IMF growth forecasts Global imbalances Spanish and Italian spreads over Annual % change in real GDP Current account balances as a % of world GDPwrites Chris Giles that Greece will hold a ref- “comprehensive plan”, the German 10-year Bunds (basis Germany & Japan Other developed countries erendum on a second EU outlines of which were points) World bail-out agreement has only revealed last Thursday Emerging Asia US 400I Advanced 2011 3.0 Oil exporters Rest of the world t is crunch time for intensified the anxiety. As morning. the Group of 20. If the Organisation for Eco- If the eurozone crisis US 2012 2.0 things go well, the nomic Co-operation and were not difficult enough, Eurozone 300 Cannes summit will Development outlined ear- deep trade imbalances are Japanmark the moment the “pre- lier on Monday, “Uncertain- the third challenge facing Spain 1.0mier global economic ties regarding the short- the G20. UK 200 0forum” acts to defuse the term economic outlook According to the IMF, Developingeconomic risks being run in have risen dramatically in current policies on trade Chinathe world. recent months.” and exchange rates suggest -1.0 Italy The alternative is to The OECD significantly that enormous current 100 Indiaallow them to fester, con- downgraded its 2012 growth account surpluses in China, Brazil -2.0tributing towards another forecast for advanced econ- Japan, Germany and rela- Russiadestructive financial and omies, cutting the eurozone tively poor oil exporters are 0 -3.0economic crisis. forecast from 2 to only 0.3 set to continue, forcing ever Jan 2010 11 Oct -2 0 2 4 6 8 10 200001 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Underlining the urgency, per cent and its US forecast more capital to flow to Sources: Thomson Reuters Datastream; IMF Photo: AFP/Gettythe International Monetary from 3.1 to 2 per cent. finance deficits elsewhereFund declared in mid- A rapidly cooling global which must balance theOctober: “The immediate economy is both a conse- surpluses. to face up to the underlying Nations a week before the in any solution to the euro-risk is that the global econ- quence and a cause of the Since well before the cri- solvency problems gener- summit, Jean-David Levitte, zone woes, non-members of Insideomy tips into a downward eurozone sovereign debt crisis, individuals and govern- ated by apparently unend- the diplomatic adviser on the single currency area Record of G20 Chris Banksspiral of increased uncer- sis, the second challenge. ments in surplus countries ing trade deficits with no the G20 to Nicolas Sarkozy, made clear at a finance Giles finds decisiveness Executivestainty and risk aversion, Fixing the existential cri- enjoyed building claims on mechanism – whether flexi- the French president, recog- ministers’ meeting in Paris is in short supply among includingdysfunctional financial mar- sis of the European single deficit countries, but much ble exchange rates or some nised the original agenda of in mid-October the euro global leaders Page 2 Peterkets, unsustainable debt currency – one that has of this capital ended up other means – for correct- the summit must be torn up nations had to demonstrate Sands ofdynamics, falling demand, frayed investors’ nerves and financing increasingly risky ing these disequilibria.” and replaced with a co-ordi- they had a “decisive” plan Global rebalancing Standardand rising unemployment.” knocked business and con- activity at cheap rates – In short, the task for the nated response, because “no to save the single currency. A grand plan has been Chartered are battling Three challenges stalk sumer confidence since the subprime mortgages and G20 summit is to accelerate one is immune from the That plan – the outlines thwarted by mutual against Basel III, writesthe global economy. summer – is a pre-requisite peripheral eurozone sover- solutions to the latter two economic crisis”. of which were agreed at a suspicion, writes Brooke Masters Page 3 Alan Beattie Page 2 Most pressing is the for a safer global economy eign debt – adding to the challenges so as to mitigate He said: “France is calling eurozone summit a week French economy Stepsdeclining outlook for next year. risks that these investment the slowing global economy on all G20 countries to before the G20 summit – Eurozone crisis are finally being taken togrowth, which has become The crisis has many flows would end in crisis and set it on a path towards adopt measures adapted to included a comprehensive Angela Merkel cut state spending, saysevident in the weeks follow- dimensions: the insolvent and huge losses. the G20’s long-standing the situation and on all recapitalisation of Euro- has been in the Hugh Carnegy Page 4ing the IMF annual meet- Greek economy; a dip in As Mervyn King, gover- ambition of “strong, stable countries that don’t belong pean banks, a 50 per cent thick of it, saysings in late September. confidence in the peripheral nor of the Bank of England, and balanced” growth. to the G20 to support the voluntary writedown of Ralph Atkins Cannes Paul Betts Then, the IMF had sovereign debt of Italy and said recently: “From the France, the chair of the collective efforts that will Greek debt, a beefed-up Page 2 profiles thealready downgraded its eco- Spain that is increasing very beginning of the global G20 in 2011, is well aware of be undertaken to restore fund to prevent summit’s host citynomic forecasts and warned their borrowing costs sub- crisis there has been a what needs to be done. confidence.” Page 4of further risks, but most stantially; and a weakness reluctance by governments Speaking to the United For the G20 to play a part Continued on Page 3

2 ★ FINANCIAL TIMES THURSDAY NOVEMBER 3 2011G20 SummitMeetings yet to reach the peak of achievement stamp a global seal of approval would be recapitalised and The subsequent summits have says the underlying problem is held numerous teleconferencesHistory on to the eurozone outline plan depositor protection bullet- achieved little more. In Septem- that countries put their national among G7 finance ministers agreed a week before the sum- proofed. That left the G20 to ber 2009, the Pittsburgh summit interests first and are willing to (excluding Russia, which is aChris Giles finds mit will not be followed in short focus on additional matters, was notable for establishing the agree to multilateral deals only member of the G8); it organiseddecisiveness in short order by another scheduled event. such as a pledge to complete the still-unfinished Doha trade aim of “strong, sustainable and balanced” world growth and a if they seem to square with their national interest. co-ordinated intervention in currency markets in March to helpsupply at the global There cannot be another post- round by the end of 2008 and a process to achieve it, which has He says: “Rifts among G20 Japan force the yen down fol-leaders’ conferences ponement of difficult decisions, unless world leaders simultane- halfhearted commitment to fiscal stimulus. inched forward ever since. Come the Toronto summit of countries tend to become exposed in calmer times, which lowing its earthquake and tsu- nami; and in August it also ously decide to arrange emer- The April 2009 London sum- June 2010, the global recovery prevents the group from taking offered a backstop to panickingLiving up to being “the premier gency summits either in Europe mit is generally seen as the was in full swing and sentiment a more concerted approach to financial markets. Eswar Prasad: rifts prevent actionglobal economic forum” has or at a global level. moment the G20 came of age, had shifted to fiscal consolida- longer-term objectives such as Finance ministers prefer G8proved challenging for the For those awaiting decisive when it reversed the economic tion so leaders agreed to halve unified financial regulatory meetings, they say privately, chair of the African Union, theGroup of 20 ever since its mem- moves from the G20 in Cannes, downturn with an audacious standards and reform of the because they offer a smaller president of the Europeanbers elevated the group to that a look at recent history provides international package including international monetary system.” forum to discuss events pri- Union, the head of Asean, therole in 2009. more cause for concern than what Gordon Brown, then UK ‘It will take some Ousmène Mandeng of UBS vately and freely without hav- IMF, the World Bank, the Inter- With the eurozone sovereign hope. Since the financial crisis prime minister, boasted was the proactive engagement says the G20 missed an opportu- ing to make speeches to hun- national Labour Organisation,debt crisis threatening the glo- turned nasty in 2008, the G20 largest fiscal stimulus “the nity to remain relevant in 2011. dreds of people. Instead of the Organisation for Economicbal economic order, the group has achieved significantly less world has ever seen” and what to restore the image of “Failure to address critical dying, the G8 is alive, well and Co-operation and Development,has perhaps its most difficultchallenge yet at the Cannes than its supporters and summit hosts have generally claimed. he called a $1,000bn “programme of support to restore an effective body, a issues and to guide market expectations when the going already has a summit in the diary for Chicago next May. the World Trade Organisation and the Financial Stabilitysummit. Before 2008, the G20 was credit, growth and jobs in the reputation [the G20] was rough has undoubtedly Not only is the G20 unwieldy, Board. The question is whether it merely an annual gathering of world economy”. weakened its relevance and it but it also has a legitimacy With such a cast list, deci-will succeed or squander the finance ministers established The summit outcomes were, had after Pittsburgh’ will take some proactive engage- problem. Although much more sions are difficult to agree at achance to demonstrate its global after the Asian financial crisis a in truth, less than the claims, ment to restore the image of an representative of the global G20 summit unless comprehen-importance. decade earlier, and few people with nothing new announced on deficits by 2013, as they were effective body, a reputation it economy than the G8, the wider sively trailed in advance. There is no doubt the calendar expected much from its meet- fiscal stimulus. The money planning to do so already. had after Pittsburgh at the group does not include all the The Cannes summit thereforethis autumn has put the G20 in ings. But after Lehman Brothers given to the International Mone- The November 2010 Seoul beginning of the crisis,” he says. world’s 20 largest economies. has more of a challenge thanpole position. Since mid-Septem- collapsed in September 2008, a tary Fund had a limited immedi- summit was marked most Since differences of outlook Spain, for example, tends to usual in defusing a crisis thatber, international meetings have first leaders’ summit was hast- ate effect on the crisis and there clearly by divisions. In a rancor- dominate the G20, the G8 has rank somewhere near 13th in threatens the global economy.been scheduled almost every ily arranged for that November. was no agreement on cleaning ous meeting – with constant again had more success in mak- the world but merely has Whether it can move fromweekend with the deadline of But before the G20 could meet up the toxic assets in banks. spats between the US and China ing decisions in 2011. This year, observer status. South Africa, platitudes to policy on the euro-arriving at a “comprehensive in 2008, the Group of Seven The last issue has been some- – the G20 achieved little save for France has chaired both the G8 the only African nation in the zone and on global imbalancesplan” for saving the euro by the finance ministers took all the thing that has subsequently delays in the process striving and G20 and originally planned G20 as of right, has an economy will be the test of its relevancetime of Cannes. difficult decisions, ensuring come to haunt the countries – for balanced growth, dressed up to take the opportunity to bury that tends to rank close to 25th. as a body, even if it has already The summit is therefore the there would be no more bank particularly in the eurozone – as progress towards the goal. the smaller grouping. Hangers-on also abound. At shown itself to be short of theclimax of the year’s negotia- failures, a guarantee of liquidity that did not take unilateral Professor Eswar Prasad of France decided against. G20 summits, these generally world’s premier global economictions. Any failure there to to financial markets: banks action in that regard. Cornell University in the US Instead, its finance ministry has include the United Nations, the forum. Mutual suspicion thwarts grand plan France’s leadership, in Global rebalancing Paris in February, China led another successful rear- A move to boost guard action, this time cooperation has blocking the adoption of targets on foreign exchange hit difficulties, reserves. says Alan Beattie Beijing also managed to combine and soften proposed guidelines on real Having been elevated from exchange rates and current finance minister to head of account surpluses and defi- government level in Novem- cits into a wider category of ber 2008 in the middle of the external balances. deepest financial crisis To add to the plethora since the Great Depression, of initiatives, Dominique the G20 spent most of its Strauss-Kahn, then the first year on crisis fighting head of the IMF, also rather than grand designs launched a series of “spill- for the global economy. StraussKahn: added to over reports”, designed to The April 2009 summit in several initiatives indicate how the large econ- London was notable for a omies interacted with each call for monetary and fiscal likely to sidestep the politi- other and affected the glo- policy to stimulate the glo- cal obstacles to the previ- bal economy. bal economy and for offer- ous ones, it was mistaken. The first round of such ing a string of promises of In theory, the gains reports were published this varying reliability about from economic co-operation summer and signally failed how the G20 would pump could be huge. The idea was to set the policymaking liquidity into the interna- that China could float its world on fire.Double act: Angela Merkel and Nicolas Sarkozy arrive at last week’s European Council summit to solve the eurozone debt crisis Bloomberg tional system and prevent a currency and rebalance its The reports made fairly collapse in world trade. economy, shifting demand minimal assessments of the As soon as the crisis from exports to domestic impact of national policiesRescue raises doubts over began to recede in 2009, enthusiasts for the G20 process, flushed with what they considered to be success from its early months, wondered if it could be consumption. In return, the US would reduce its fiscal and external deficits. In practice, the plan has run into distinct difficulties – not just in the mutual sus- on the global economy, including a prediction that a revaluation of the renminbi would not make much difference to US current account deficits.details and deeper issues turned to addressing chronic underlying problems rather than simply be an emergency service called to acute cases of economic distress. picion that each side will renege on its part, but on a more fundamental disagreement about what the underlying problems in the global economy actually are. With the G20’s attention having been drawn once more to the immediate future by the eurozone crisis, there seems little chance that the adoption of fiscal authorities – and competitiveness policies has As a result, the possibility Out of this curiosity came guidelines with qualitativeEurozone options divergences in economic ON FT.COM also been strengthened. At remains of Greece leaving what were touted as grand or quantitative indicators at competitiveness which lie their Brussels summit on the eurozone. schemes for rebalancing the Beijing managed to the Cannes summit is goingThe single currency at the heart of its problems. France made October 26, eurozone lead- A return to the drachma world economy. soften proposed to make any practical dif-is not yet out of Beyond the eurozone, especially among interna- reform of the international ers pledged to “strengthen the economic union to might bring short-term gains in terms of competi- Global current account imbalances – the US deficit guidelines on real ference in the short run to the way that the globalthe woods, writes tional investors, there is monetary make it commensurate with tiveness – but the benefits being matched by surpluses exchange rates economy is run.Ralph Atkins scepticism over whether some kind of break-up can system a centrepiece monetary union”. Under discussion are are far from clear, given the enormous disruption a in China, Japan and a few other countries – had been and current If so, they are likely to join a growing pile of be avoided in the long run. of its G20 presidency, measures that would see withdrawal from the euro- one of the main preoccupa- initiatives that have tried account surplusesW hat will hap- European politics have recognising how important EU authorities, in effect, zone would cause. tions of policymakers before and failed to induce co-oper- pen to the certainly given pause for this could be for addressing taking control of the domes- Beyond Greek borders, the global financial crisis in ation over rebalancing the eurozone? The thought. Berlin and Paris global imbalances, writes tic policies of eurozone however, talk of allowing 2008 drew their attention to The Cannes summit was world economy. run-up to the have frequently clashed Claire Jones (pictured). But member states that failed to countries to exit the euro- more pressing concerns. intended to be the end pointG20 summit has seen fran- over strategy. The govern- reform has slipped down the follow its rules. Changes to zone has started – in the The US, in particular, had of a two-year process intic summit activity in ment of Angela Merkel agenda, which has much to do treaties are on the agenda. context of a strengthened tried a variety of ways to which the IMF would comeEurope to restore investor envisages a “rules-based” with the eurozone crisis. One The big test of whether it political union. persuade China to allow up with suggestions for eco- Contributorsconfidence in the conti- union in which fiscal mis- observer says there has been can all work will be what Mark Rutte, the Dutch more flexibility in the ren- nomic indicators that each Chris Gilesnent’s almost 13-year old creants are punished and a lack of intellectual happens to Greece. The prime minister, for minbi, including direct country could adopt as its Economics Editormonetary union. the central bank sticks to leadership. For the full story, country’s mountainous pub- instance, has argued for a bilateral pressure on Bei- contribution to reducing With just days to spare controlling inflation. and a look at what is next for lic sector debt – masked by European commissioner for jing, pressing the Interna- global imbalances. Ralph Atkinsbefore the global gathering The German chancellor international monetary reform unreliable statistics – and budget discipline with pow- tional Monetary Fund to But perhaps the key Frankfurt Bureau Chiefin Cannes, eurozone leaders has taken an incremental with Mexico taking on the severe loss of economic ers to force a country to put sharpen its analysis of moment – and the one that Alan Beattiehave agreed a three- approach to crisis resolu- presidency next year, go to competitiveness triggered its finances in order. exchange rates, and conven- has caused widespread International Economypronged strategy to put tion, insisting that prob- www.ft.com/g202011 the eruption of the euro- “Countries that do not ing a group of countries scepticism about the ability EditorGreece’s public finances lems built up over years zone debt crisis in early want to submit to this within the IMF under the of the MAP to succeedback on a sustainable basis, cannot be resolved quickly. 2010. regime can choose to leave rubric of multilateral sur- where similar initiatives Paul Bettsto strengthen European By contrast, Nicolas Since then, Greece’s prob- the eurozone,” he wrote in veillance. had failed – came in the European Businessbanks’ balance sheets, and Sarkozy, French president, unite in economic, financial lems have escalated, as the the FT last month. None of these had con- run-up to the November Correspondentto beef up the European has favoured bolder solu- and monetary fields than Athens government failed The risk of allowing one spicuous success, with the summit in Seoul last year,Financial Stability Facility tions, arguing, for instance, there were at the beginning to implement ambitious country to exit at some US’s enthusiasm for letting when the US pushed hard Hugh Carnegy Paris Bureau Chief(EFSF) as a multifunctional that the European Central of the 1950s,” he said. “I structural reform plans point in the future would be the renminbi rise not being for numerical guidelinesrescue vehicle that can Bank should act more really think that the struc- demanded by international serious “contagion effects”, matched to quite the same including targets of 4 per Claire Jones“ring fence” crisis-spots. aggressively as a backstop tural transformation of the creditors. The country has as financial markets bet on extent by other large econo- cent for current account Money Supply and But considerable doubt for governments. world, the formidable eco- been plunged into a deep the next member to leave. mies, including the euro- surpluses. Economics Team Writerremains over whether such Yet the forces that have nomic success of the emerg- recession and images of More immediately, the zone. In open disagreement,steps will be sufficient, driven Europe’s economic ing countries, of China, of violent protests are beamed firewalls put in place by In any case, China China fought back hard Brooke Masterseven before Monday’s integration since the second India, of all emerging Asia, daily around the world. eurozone leaders, including resisted pressure applied against the idea that these Chief Regulationannouncement that Greece world war remain in place, of Latin America, calls for At the October 26 sum- the enhanced EFSF, may through any and all of would be binding numerical Correspondentwill hold a referendum on and provide an explanation the Europeans to unite very mit, Greece was given prove insufficient to restore these channels – to the proposals. Beijing received Andrew Baxterthe bail--out. lt is not just of why – despite everything significantly. another chance. An agree- investor confidence beyond extent where Beijing in support from some slightly Commissioning Editorthat many of the plan’s – continental Europe’s lead- “One of the main lessons ment on a larger “private the short term. effect blocked the IMF from unexpected quarters suchdetails still have to be ers see the only option as of the crisis is precisely that sector involvement” is So far, the ECB, which producing its annual “Arti- as Germany, which feared Steven Birdworked out, let alone imple- pressing ahead with the Europe needs more unity.” aimed at bringing the coun- has theoretically unlimited cle 4” health-check on the that it would be asked to Designermented. It is also unclear “project”. The eurozone remains a try’s debt down to a man- firepower, has explicitly Chinese economy. reduce its current accountwhether fundamental flaws Ms Merkel recently told long way from a fiscal ageable 120 per cent of refused to become the Undaunted, the US saw in surplus, most likely by loos- Andy Mearsin the eurozone’s construc- Germany’s Bundestag: “The union – but steps towards a gross domestic product – lender of last resort for gov- the G20 the potential for ening fiscal policy. Picture Editortion have been corrected. euro is a guarantor of a greater pooling of sover- compared with official fore- ernments. another try, and thus at the In the end, the G20 “There is hope that we united Europe, or put it eignty have already been casts that it could rise to For all Germany’s com- Pittsburgh G20 summit in decided in principle that For advertising details,have turned an important another way: if the euro made that would have been nearly 200 per cent. mitment to European inte- the autumn of 2009 was guidelines would be pro- contact: Robert Grange,corner,” says Huw Pill, fails, Europe fails.” unimaginable even a few Until signs of a sustaina- gration, its voters remain born the “mutual assess- duced, but the US failed to Phone +44 (0)20 7873European economist at Jean-Claude Trichet used years ago. ble Greek economic turn- deeply wary of the potential ment process” (MAP) – com- get agreement about hard 4418; Fax +44 (0)20 7873Goldman Sachs. “But there more mercantilist reasoning With the launch of the round emerge, however, it cost of its support for coun- missioning the IMF to come numerical indicators. That 4006; Email:are still deeper issues that in a Financial Times inter- EFSF, which has powers to will be unclear whether the tries such as Greece. up with suggestions for discord rapidly diminished robert.grange@ft.comneed to be addressed.” view before he stepped raise funds in capital mar- necessary adjustment in A eurozone break-up rebalancing policies that the possibility that the Most crucial are the down as ECB president on kets, the European Union wages and other costs will would be a bitter blow for a each G20 government could MAP would succeed where All FT Reports aregovernance of the eurozone October 31. has a prototype common be possible because mone- generation of European follow. previous plans had failed. available on FT.com at– which has a single “There are more reasons “euro bond”. tary union rules out cur- leaders – but not yet a sce- If Washington believed At the first ministerial www.ft.com/reportscurrency but 17 separate today for the Europeans to Surveillance of fiscal and rency devaluations. nario that can be ruled out. this new approach was meeting of the G20 under

FINANCIAL TIMES THURSDAY NOVEMBER 3 2011 ★ 3 G20 SummitBanks and regulators at odds Authority, said recently: barrage of reforms and reg- tions are being written stimulating the global econ-Financial services “We are committed, in the ulations is being applied dif- right now on top of the US omy is putting significant UK and globally, to putting ferently by the various Dodd-Frank process. pressure on the financialBrooke Masters a stop to ‘too big to fail’ regional and national regu- In some ways, this was stability policy objectives.finds the debate status, with resolution tools which can deal smoothly lators. “This extraterritoriality is only to be expected, given the different national priori- The politicians face a real conundrum that too muchover Basel III and with the failure of a bank resulting in a disjointed ties. The US, UK and Swit- safety could lead to furtherother new rules however large.” So far, signs point to a approach to improving transparency and reducing zerland are especially focused on preventing a economic contraction.” Bankers, meanwhile, areis heating up G20 endorsement of both risk across financial serv- repeat of the crisis, but rethinking which business the “GSifi” surcharge and ices, globally. other countries have differ- lines will still be profitable the resolution framework, He adds: “This encour- ent goals. under the new regimes andI n the months leading but it is not at all clear ages regulatory arbitrage. Tim Kirk, head of finan- are warning that some up to the Group of 20 what that rhetoric will The jurisdiction that cial services at BDO, a con- activities – including lend- nations meeting in mean in practice. enforces the first or most sultancy, says: “While glo- ing – could become much Cannes, global bank- Recent history suggests negative set of rules will bal consistency is proving more expensive.ing executives have that national interests – drive participants else- more challenging than gov- Patricia Jackson of Ernstmounted a furious attack both in protecting local ernments and regulators & Young, says: “There is noon the Basel III reforms champions and in wooing may have expected, indus- doubt that the combinationthat will force their institu- overseas business – tend to The eurozone try practitioners are much of higher capital, leveragetions to hold more capital reassert themselves when crisis and faltering less surprised . . . restrictions and liquidityand liquid assets. the G20 leaders go home. “Some governments place buffers is putting pressure They single out the Agreements reached at economies different priority on attract- on the industry.”capital surcharge for “glo-bal systemically important prior summits on raising bank capital requirements, have damped ing business and being seen as a competitive place to do These pressures are likely to make it hard for the G20financial institutions” tying banker pay to risk enthusiasm for business as opposed to ever to decide what to do next.(GSifis), which is on the and taming over-the- tighter regulatory stand- With global regulatoryagenda for formal endorse- counter derivatives, have tough reform ards and the higher costs groups such as the Basel Peter Sands of Standard Chartered: warned of risks from chasing financial stability Gettyment by the G20. It will, all become snarled in local these bring.” Committee on Bankingthey say, hobble already issues during the implemen- where, which in the long The continuing crisis in Supervision (author of the Barbara Ridpath, chief long-term investment sion has been on the pru-fragile economic growth tation phase. term is damaging to any the eurozone and faltering Basel III reforms) and the executive of the Interna- returns for investors and dential side . . . It hasn’tand force the 28 to 30 larg- Steve Culp, global manag- market that needs multiple economies worldwide have Financial Stability Board tional Centre for Financial savers . . . They have got to really moved on to considerest and most interconnected ing director of Accenture’s types of investors with dif- also damped enthusiasm for focused on implementation Regulation, a think tank, keep their ‘eye on the prize’ consumer protection.banks to shrink their lend- risk management practice, ferent investment hori- tough reform. and ensuring level playing has a partial answer. of how good regulation can “But if you look at theing to the world economy. says: “In many ways, the zons.” Giles Williams, co-head of fields and the banking “It’s critical that G20 lead- support growth,” she says. US, UK and EU, that is “There is an acute danger 2009 London G20 marked Research by Accenture KPMG’s Regulatory Centre industry struggling to ers recognise the role of Former regulator Clifford clearly part of the issue.that the pursuit of financial the high-water point for shows that more than 150 of Excellence in Europe, rethink its business models, securities markets in rais- Smout, now with Deloitte, That may be a theme thatstability imposes too great a collaboration across the pieces of global or domestic says: “The recognition that where should politicians ing finance for companies has another prediction. He comes to the fore over thecost on economic growth global political, industry financial services regula- bank lending is crucial to put their energy? to grow, and providing says: “On the whole, discus- long term.” he says.and job creation at a fragile and regulatory agendas.time for the world econ- “Since that event, localomy,” Peter Sands, chief and national agendas haveexecutive of Standard Char- taken precedence over atered said in September as common and consistent sethe unveiled an industry of global rules.”study that emphasised the While many of the effortspotential cost of the regula- are aimed at furthering thetions. agreements, the actual Regulators, meanwhile, details often conflict, caus-want the G20 politicians to ing confusion and raisingendorse not only their capi- potential costs for thetal regime but also their industry.plans to force banks to The European Union iswrite their own “living drafting laws on bank capi-wills” that would make it tal, derivatives trading,easier to break up or shut credit rating agencies and adown failing institutions. host of other measures, Without a global frame- while the US is draftingwork for handling cross- more than 100 rules, manyborder bank failures, the of them on similar subjects,world economy is still vul- to implement its Dodd-nerable to a repeat of the Frank reform law.disastrous 2008 collapse of David Holcombe, special-Lehman Brothers. ist in trading at Rule Finan- Lord Turner, chairman of cial business and technol-the UK Financial Services ogy consultancy, says: “TheGlobal leadersunder pressureContinued from Page 1 imbalances inches forward at glacial speed. The addedcontagion spreading from difficulty, as Mr LevitteGreece to other eurozone makes clear, is that unlikeeconomies and medium- in 2009, there is no unifyingterm reforms to the govern- theme for action needed toance of the eurozone to pre- foster a stronger and morevent a recurrence of fiscal balanced global economy.and trade imbalances He says: “The messagewithin the zone. from Cannes will have to be The enhanced European more diverse; some nationsFinancial Stability Facility need to focus on measureswill have two elements in a to boost their economy,package with more than others on consolidating€1,000bn of firepower: lim- their public finances, andited insurance for sovereign still others on rebalancingdebt of peripheral countries their economic models toand a new leveraged fund promote domestic consump-to buy debt outright. tion.” Underpinning the details On past experience, gain-is the idea that medium- ing agreement on generalterm German and French themes and objectives willfinance for peripheral euro- be easier than specificzone countries will be bal- changes in domestic poli-anced by German and cies of any G20 member.French control of economic In addition, France is stillpolicy across the eurozone, keen to be seen to havein what Angela Merkel, made some progress onGerman Chancellor, euphe- Mr Sarkozy’s originalmistically calls a “stability ambitions for the 2011union”. G20 agenda on reforming the international monetary The IMF has system. a substantial It is expecting specific arsenal of agreements on rules gov- resources, erning the management of says Tim international capital flows – Geithner allowing countries in limited circumstances to impose capital controls. Once these elements of a France also hopes topackage are agreed, the increase the range of IMFFrench hosts hope that non- credit lines available toeurozone countries will help well managed coun-boost the credibility of the tries that are exposed in aplan at the G20, either crisis, co-ordinating thesethrough additional bilateral flows with those of Europeor IMF support. The aim and Asia.would be to provide over- And it hopes to continuewhelming firepower behind discussion on exchangethe eurozone and stop trad- rates, particularly that ofers betting on a eurozone the renminbi, although itbreak-up. acknowledges there will be G20 finance ministers no breakthrough in Cannes.made clear in Paris that But the problem for worldsuch a deal was a possibil- economic governance isity, though it is far from a that it still faces a deep col-certainty in Cannes. lective action problem. Speaking in a similar vein Policy changes thatto many non-eurozone would foster the commonfinance ministers, Tim good are seen as counter toGeithner, US treasury secre- individual countries’ domes-tary, said: ”The IMF has a tic interests. This obstaclesubstantial arsenal of finan- has forced France to scalecial resources, and we back its longer-term ambi-would support further use tions for Cannes.of those resources to sup- The potential for the sum-plement a comprehensive, mit to make progress inwell-designed European fighting the immediatestrategy alongside a more eurozone crisis is thereforesubstantial commitment of something of a boon for MrEuropean resources.” Sarkozy as he prepares for In contrast to hastily Cannes. Without the crisis,devised plans to defuse the the potential achievementseurozone crisis, the G20’s of the summit were lookingprogress in reducing global extremely limited.

4 ★ FINANCIAL TIMES THURSDAY NOVEMBER 3 2011G20 SummitRiviera resort shows off its Cannesdo attitudeLocation profileThe seaside city has come a long way sinceBritish aristocrats put a sleepy fishing village onthe high society map, writes Paul BettsC annes loves putting on Cannes is no longer the a show. The French exclusive winter resort of Riviera resort does the old British aristocracy exactly that every year, that flocked to the Rivierawith what has become, since after Henry Brougham, the lord1946, the world’s most chancellor of Great Britain,prestigious film festival. So discovered this sleepyhosting the latest G20 summit Mediterranean fishingis the sort of big international village in the 1860s and putevent the city can take in its it firmly on the high societystride. map. Of course some of its 80,000 Later, American literati,or so local residents will including the writer Scottinevitably complain of the Fitzgerald, made Cannes anddisruption the G20 will its immediate surroundingsprovoke, with all its security even more fashionable andmeasures and motorcades of famous.heads of states and their These days, the city relies onentourages. its film festival, boat show and After all, this is a time of other big events andyear when the city, with its conventions to keep itspromenade (the economy, which relies“Croisette”), its mainly on tourism,grand hotels and turning all year.casino, its The touristmarina stuffed season has nowwith fancy shifted from Now and then: the seafront at Cannes and (inset) film stars parade in the street in 1947 Alamy, AFP/Gettyyachts, its winter tomarkets and summer, but neighbour Nice and, a little Europe’s leading satellite before the steady property once bucolic Riviera haven. It is undoubtedly occasionssmart shops, Cannes’ good further down the coast, manufacturers. development and expansion of Mercifully, the Carlton hotel like this that help maintain thebecomes transport Monaco. Cannes’ balmy climate – recent years, into one long is still there, with its twin profile of Cannes and therather facilities – The seaside city also serves a tender indeed are its nights, as suburban strip from Nice to domes representing the breasts Riviera at large on thepleasantly the busy high-technology cluster in the Scott Fitzgerald noted – and Cannes and beyond. of the belle époque courtesan international stage. It alsoquiet yet international neighbourhood, even though privileged position have also Even the hills in the Caroline “la belle” Otero, and seems appropriate thatstill sunny airport at the Sophia Antipolis made it increasingly popular hinterlands are scattered with so are the other Croisette President Nicolas Sarkozyafter the Nice is close technopolis has never really with French and European housing developments and grand watering holes – the chose Cannes to host thehustle and by and high lived up to its early ambitions retirees, helping to prop up holiday residences. Martinez, the Majestic and the present G20 meeting.bustle of the speed TGV of becoming a French Silicon local property prices even Lord Brougham, who Grand Hotel at the tip of the It is bound to provide assummer trains serve Valley. during the current economic built the first of the grand Cap d’Antibes. much drama and suspense asseason. its station – But Cannes can boast a role downturn. old villas of Cannes (the These hotels no doubt will be the Cannes Film Festival itself But then have made it in the European space industry This, together with the Villa Eleonor-Louise, named teeming with heads of state, but without, some may regret, an attractive with the headquarters of the growing appetite for holiday after his daughter), would their mandarins, central quite the same colourful andHenry Brougham: convention centre Franco-Italian Thales Alenia homes has inevitably urbanised certainly be raising an eyebrow bankers, ministers, security frivolous cocktail of glamour,discovered Cannes competing with its space venture a few miles away the coast transforming it, or two if he saw what modern guards and journalists during gawpers, baubles, bangles andin the 1860s Getty much bigger at Mandelieu. It is one of sadly, for those who knew it development has done to his the summit. beads. Yet you never know. Hope is to cut while still fostering growth everything from increased budget projections indicates French economy taxes on the rich, new taxes a potentially important on sweetened soft drinks turning point, as the gov- Concrete steps are and the axing of 10,000 offi- ernment’s efforts to bear finally being taken cial cars. It is trying to do this down on public expenditure take hold. to reduce public without damaging what This year, the size of pub- spending, reports little growth there is in the economy, preserving lic spending as a proportion of GDP – one of the highest Hugh Carnegy tax breaks such as reduced in Europe – will fall to 56.3 VAT on restaurants and per cent from 56.6 per cent preserving subsidies for in 2010. It will fall to below As the eurozone sovereign research and development. 56 per cent next year and debt crisis has escalated “In an environment of rel- continue to decline if cur- over the past 18 months, atively low economic rent policies are held in France has had to deal with growth combined with high place. an uncomfortable truth: its public debt, the challenge is That is much higher than, room for manoeuvre in the for the government to bal- for example, that of Ger- tortured series of negotia- ance fiscal consolidation many, the usual comparator tions over successive rescue and growth-enhancing eco- for the competitiveness of plans was limited by the nomic policy measures,” the French economy. relative weakness of its said Moody’s, the US rating Nevertheless, Valérie own fiscal and economic agency, in its latest report Pécresse, the budget minis- circumstances. on France. ter, insists it is a “historic The country is one of The agency concluded by change”. She declared in only six members of the warning that it might cut the National Assembly: eurozone with a triple A its outlook on France’s tri- “This has not happened rating on its sovereign debt ple A from stable to nega- since 1945 and it is [this (along with Germany, the tive if the eurozone crisis government] that will put Netherlands, Austria, Fin- were to cause the situation an end to the continual land and Luxembourg). It to deteriorate over the next increase in spending by the remains a major force in three months. state.” the European economy, Mr Sarkozy has been criti- with an impressive line-up cised for not pushing of multinational companies. harder on structural President Nicolas Sar- reforms, but the reversal of kozy’s centre-right govern- the hitherto relentless ment, in power since 2007, increase in the state’s share has been committed to a of the economy is helped by programme of structural important measures taken reform and is doggedly during his tenure. chipping away at the [This government] The minimum pension budget deficit in an attempt will put an end to age has been raised from 60 to reduce the size of the to 62 and the age for receiv- public sector and give a the continual ing a full pension is being long-term stimulus to the economy. increase in spending raised from 65 to 67. A programme of not replacing But France continues to by the state’ one in every two retiring be constrained by heavy fis- Valérie Pécresse, public servants has led to a cal pressures and feeble Budget minister reduction in public sector growth. That, along with employment of 150,000 over worries about the exposure five years. of its banks to risky euro- Circumstances are cer- Concerns remain – widely zone sovereign debt, has tainly not getting any eas- expressed by the private cramped its scope for sup- ier: the government has sector – over things that porting eurozone bail-out acknowledged its forecast of undermine competitiveness. plans and raised questions 1.75 per cent growth next These include very high over the sustainability of its year is too optimistic and it costs imposed on employ- triple A rating. is set to reduce the estimate ment where, again, France Behind this lies a deeper closer to consensus fore- has fallen out of step with worry over weakening casts of about 1 per cent. Germany. competitiveness, especially That will require further Another factor is a per- against Germany. Since the austerity measures to keep ceived shortage of private mid-2000s, France has the budget deficit reduction capital for business, with a slipped behind its neigh- on target. weak infrastructure of pen- bour in terms of its per- Despite the fact that Mr sion and other investment formance on growth, export Sarkozy faces a presidential funds willing to finance market share and employ- election next April, he is growing companies. ment. determined to make a vir- But the private sector In the short term, the tue of reforming the public does take some comfort government’s top priority is finances as part of a wider from what it sees as a grow- to bring down the budget plan to increase growth ing consensus on the need deficit, set to hit 5.7 per potential. for a serious reduction in cent of gross domestic prod- He does not like his min- public indebtedness and a uct this year, to a target of isters to use the words “rig- recognition of the need to 3 per cent in 2013 – and to our” or “austerity”, but stimulate more private sec- converge on a balanced they are open about the tor employment. budget in the years beyond. drive to reverse a period of “The idea of implement- This would enable it to more than 30 years in ing serious reforms to control a sharp rise in the which public finances have obtain real fiscal consolida- public debt, which, under been in deficit. tion is accepted, even in the the current programme, This has culminated in [recent] debate among the will peak at more than 87 debt servicing becoming the socialist presidential candi- per cent of GDP next year. single largest expenditure dates. We are making It is doing so through a in the budget, reaching progress,” says Laurence series of austerity measures €48.8bn next year. However, Parisot, head of Medef, the that have encompassed another statistic from the employers’ federation.

G 20.special report.financial times.november 2011

by Andrew Williams Jr

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G 20.special report.financial times.november 2011 Document Transcript