G20’s Trillion Dollar Plan

By promising a complex stimulus package to pull the global economy out of recession, the G20 leaders have at least committed for the good. Now it remains to be seen how they can synergise their resources to implement it in letter and spirit.

The strategy unveiled in London includes infusing $5 trillion, on a broader canvas, into the world economy to save and create jobs, and reforming the banking system by ensuring greater supervision and regulation. Yet the ambitious fiscal plan will be up for a gruelling test taking into account how much of protectionism the respective states will resort to, and what impact the perceptional division between Continental Europe and the United States will have in accomplishing the goal of reviving growth.

Apart from the unanimity of views “to do whatever it takes,” the London summit will be remembered for a couple of firsts: President Barack Obama’s personal diplomacy with Europe, Russia and China to help push through an agreement on regulations and emergency aid; and British Prime Minister Gordon Brown’s thrust to salvage the international financial institutions, especially the IMF, by enhancing its lending power to $750 billion – a direct measure to provide relief for poorer nations.

Similarly, the G20, an elite amalgamation of developing and industrial countries, made a unique endeavour by trying to reach the dispossessed economies of the world. The pledge of about $1.1 trillion for loans and guarantees to boost trade will go a long way in cushioning the most fragile economies. However, looming unemployment, shrinking trade prospects and plummeting growth are challenges that will have to be endured both by the rich and the poor nations, alike. Given the nature and complexity of the crises, there can’t be a ‘one-size-fits-all’ approach — and this impression was supplemented in London as world leaders struggled to see through the same prism.

The summit, however, settled on vaguely worded promises to keep trying to restore growth and to keep interest rates low. Contrary to US beliefs, the communiqué included no new commitments of domestic government spending – contributing to the perception of a deep trans-Atlantic divide. France and Germany, who made every effort to come up with a synopsis of their own by calling for greater regulation of financial markets, were consoled with pledges to crack down on tax heavens and implement control on executive pay. Yet, French President Sarkozy and German Chancellor Merkel grabbed enough political mileage by making clear the ‘nonnegotiable red lines’ in overcoming the economic malaise. Choosing compromise over division, world leaders anyway have made a concerted effort to avoid a repeat of 1933-like breakdown, which left the world mired in the Great Depression. Yet London’s decisions will not immediately solve the crisis. Rather, the pro-active role committed by respective governments will act like a catalyst in restoring the confidence – an essential ingredient for lifting the economy from the abyss of slowdown. Recovery, however, is yet an uphill task.