The papers are full of this Thursday’s G20 meeting in London.
As world leaders and anti-bank protestors congregate for a nice shindig and a bit of sloganeering, the G20 offers Gordon Brown yet another chance to be seen “doing something” to save the world.
But it’s all a complete waste of time, money and energy, that could end up doing more harm than good. Here’s why…
The G20 could make things worse
I find it hard to get excited about the G20 meeting. There’ll be acres of coverage of the thing over the next couple of days, most of it speculation. Views on its actual success or failure will depend entirely on the political views of the columnist writing about it.
Let me save you the bother of reading all that newsprint. The G20 won’t do anything to change the path that individual countries have chosen to take through this recession. The only danger is that it’ll make things worse.
It’s quite simple. Politicians’ priorities are to pursue their own country’s national interests, because that’s what will get them elected next time. That’s entirely understandable. But it means that the idea of these guys coming to some global agreement between them to fix the world economy is laughably idealistic. The best we can hope for is that no one storms out in a huff.
The trouble is, no one can agree on what caused the problem in the first place. On the one hand, we have the Anglo-Saxon economies. Roger Bootle roughly sums up their argument in today’s Telegraph. “Putting it starkly, ‘excessive’ spending by America, the UK and others, financed by borrowing, kept the world afloat.”
To me, that sounds a bit like a fat man blaming his local takeaway for the state of his waistline. But let’s roll with it for the moment. If this is your view, then the solution is for Germany and China in particular, to encourage their consumers – presumably with cattle-prods if necessary – to buy more stuff.
But the Germans are quite happy with the way they are. German Chancellor Angela Merkel pointed out in the weekend FT that her government is actually quite indebted enough already. And they also have no desire to go from being an export-based economy to a consumption-based one. They feel as though they’ve behaved responsibly and see no reason why they should be taking lectures on economics from the likes of the UK.
Regardless of who’s right and who’s wrong, these views are not compatible. And as no one is in a position to dictate to the others, there won’t be any significant agreement reached.
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New regulations won’t prevent the next bubble forming
So here’s the real threat. Because they can’t agree on the big issues, the politicians will come together to mess around in the areas that they do agree on. After all, they can’t sit around spending millions of pounds of taxpayers’ money without something to show for it. As Bootle points out, that’ll mean a lot of discussion of “financial regulation, hedge funds, short-selling and bankers’ pay.”
And as Bloomberg reports this morning, that’s exactly what’s happening. “There is reason for optimism that progress toward stronger global regulation has begun,” Daniel Price, former G20 negotiator for George Bush, told the newswire. “Agreement on a shared regulatory agenda would provide the G-20 summit with a measure of success even as leaders remain at odds over trade policy, fiscal stimulus and the status of the dollar,” Bloomberg continues.
The trouble is, the regulatory aspect is the least important. As Matthew Lynn pointed out in MoneyWeek recently, any new regulations will just be about bolting the stable door after the horse is well over the hill. They won’t prevent the next bubble forming – or from blowing up horribly.
The growing threat of protectionism
Meanwhile, for all the fine words about not lapsing into protectionism, the nationalist tendencies are growing thick and fast. As Ambrose Evans-Pritchard points out, China has just “announced a raft of export tax rebates… to shore up exports”. And the Chinese have been on the receiving end too – the Australians have just blocked the country from buying a strategically important Australian mining group. And, says Bloomberg, “the World Bank says most G20 members have taken actions that restrict trade, even after pledging to avoid protectionism.”
In effect, getting together for the G20 summit provides a nice fig leaf for the world’s politicians. While global leaders are saying one thing to each other, and tackling the evil financial sector with more rules, they can return home and carry on with increasing protectionism and looking out for national interests. As Ross Clark pointed out in The Spectator last week, it’d be far better to cancel it and just save ourselves a few million.
From an investors’ point of view, all the G20 presents is added risk. The danger is that with all the focus on bashing the financial sector, any new rules on shorting, or hedge funds, will have knock-on impacts on the markets. Uncertainty is the main issue paralysing investors just now – there’s a good chance that more political interference will only make this worse.
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