HORSHAM, England: More money from G-20 governments will give the world economy no more than a “sugar high” if banks are not stabilized, the head of the World Bank said yesterday as financial policymakers gathered to seek ways of battling the crisis.
That struck at the heart of a rift between Washington, which is pushing for governments to spend more, and European capitals, which want the response to the crisis to now focus on rapid moves on regulation in addition to doling out public cash.
G-20 finance ministers and central bankers headed for the talks in southern England yesterday under growing pressure to resolve their differences and show progress on the road to a broader summit of world leaders in London on April 2.
Some progress is being made: The leaders are expected to back a call this week to double International Monetary Fund resources to help emerging economies hit by a collapse in global demand for their exports and the severing of credit lines.
The meeting is also tasked with issues ranging from tax havens to banking regulation and how countries deal with the toxic assets at the heart of the crisis.
“If you don’t take on the banking issue, the stimulus is just like a sugar high. It pushes some energy into the system but then you get the letdown unless you reopen the credit markets,” World Bank President Robert Zoellick said, speaking in
London before the meeting.
Japanese leaders sided with the US push for more spending but the unity of the group of developed and developing nations looked seriously compromised after Paris accused Washington of disregarding the urgent need for tough market regulation.
“The United States is insisting on the need for a strong, rapid and coordinated stimulus. Why? Because they were the last ones to put in place their plan and they are facing a bigger crisis,” French Finance Minister Christine Lagarde said.“For most of the countries in continental Europe, the urgency is to develop the rules, highlight discipline and sanctions through a new architecture of the financial system,” she said in an interview in Les Echos newspaper.
China too said it was ready to do more if needed to spur its growth.
“The immediate issues are to stabilize the financial system (and) to get out of the present deflation threat facing the world economy,” Japan’s Yosano was quoted as saying in yesterday’s Financial Times.
“These two are the most important things.”
The G-20 group’s finance ministers and central bankers to meet in Horsham, south of London, today to pave the way for a meeting of world leaders on the crisis on April 2, also being hosted by Britain.
Badly battered financial markets are taking some comfort from signs that large US banks may survive without full government takeovers.
But a solution to the core problem of what to do with a mountain of troubled assets held by banks is proving elusive. The G-20 are under pressure to deliver on pledges made in November to combat the crisis and guard against future meltdowns, including commitments to regulate better.
Washington is urging the biggest industrialized countries to spend 2 percent of their gross domestic product to boost demand and pull the global economy out of its tailspin, but France and Germany have rejected US and British calls for fresh spending.
“The international community must unite to tackle the downturn and set the path toward a sustainable future,” British Chancellor of the Exchequer Alistair Darling said yesterday in a column in the Wall Street Journal.
“We must do three things: Boost demand, reform the global system of financial regulation, and increase the resources of the International Monetary Fund (IMF).”
The G-20 represents more than 80 percent of the global economy, comprising the G-7 industrialized nations — all of which are in or near recession — and key emerging market economies such as China, India, Russia and Brazil.
