Grading the G-20

The London Summit is over and the G-20 leaders have delivered their communiqué. Not everyone got what they wanted but, perhaps not altogether surprisingly, the leaders have nevertheless declared their meeting a success. 

The initial market response has been positive, although markets were already rallying before the end of the Summit in response to hopes that the recent flow of economic data might be signalling some kind of stabilisation in the world economy. And in our post-GFC world, any positive judgment by financial markets is anyway now taken with a truck-full of salt.

So how successful was the meeting? The answer depends on the benchmark you choose to judge it against.

If measured against pre-meeting expectations the London Summit looks reasonably good. The proclaimed outcome knits together pre-existing commitments on fiscal and monetary stimulus with more resources for, and reform of, the IMF in particular and the international financial architecture in general, along with some pledges to deliver a new and improved framework for international financial regulation that builds upon the Washington Action Plan. All of which maps fairly well onto what had been expected.

Alternatively, if leaders are to be judged against what could have gone wrong, then again they did a pretty good job. As this Economist piece points out, at least there was no repeat of the disastrous London Summit of 1933. Similarly, when set against the recent record of international economic meetings, the agreements produced by the London Summit stack up pretty well. Admittedly, however, these are both pretty low benchmarks.

Finally, when judged against the severity of the current global economic crisis, the London Summit merits something better than a pass, but still falls well short of an A grade. In particular, missing from the communiqué is any dramatic new plan for international fiscal stimulus or for dealing with toxic assets. Given the pre-summit negotiations, this is certainly not a surprise. But it is still a disappointment.