G-20 Communique: Unprecedented Global Regulatory Force…Or Not
The G20 communique draft is out. Here are some important details, as read in this Reuters report:
–Fiscal expansion: No details on the amount yet, but the fiscal measures will be “unprecedented and concerted.” Read: Huge.
–Central banks agreed to take “unconventional measures as long as needed.” The IMF will analyse and offer suggestions for central banks’ actions.
–No competitive devaluation of currencies will take place. Again, the IMF will look into the matter.
–A Financial Stability Board will work with the IMF to analyse macroeconomic risk and recommend solutions.
–Markets, “major institutions,” and “systemically important hedge funds” will be regulated internationally.
–Said significant financial institutions will be subject to executive pay and compensation limits.
–Tax havens that do not cooperate with standards will be indentified and sanctioned.
–Global accounting standards, including asset valuation, will be made.
–Credit ratings agencies will be registered and regulated globally.
The language in the G-20 communique could be interpreted as strong, or unprecedented, but the fact is that when it comes to international collaboration, personal (country-specific) interests block almost all action. The Baseline Scenario does a good job of breaking down the reality behind the summit here.
The one thing the G-20 communique does do is put language in place for future action. If you look at some of the points, they are pretty extreme. A global regulator for private company compensation, for example, could be an intimidating prospect, if that regulator were given enough power. It won’t happen now, or within the next 5 years, but if the language is in place, people become more comfortable with the idea. After enough years of building on the language and concepts, they will gain traction.
Meanwhile, it’s just showboating.