On April 2, apart from the usual cloudiness of the English sky, another one big and dark cloud will be over the British capital; the G20 leaders will be trying to find solutions to the most severe financial crisis of the last decades. But the symbolic meaning of the location creates unavoidable comparisons with the summit hosted in London 75 years ago - the 1933 World Economic Conference which tried to manage the consequences of the Big Depression but ended up with failure. The G20 Summit has thus created high expectations, but the continuous rift between the Europe and the United States consists a very serious obstacle on the way to “compromise”.
Americans propose a co-ordinated fiscal stimulus which could give a boost to today's quiescent economic situation, while France and Germany are obviously worried about the scale of their public deficits. Therefore, the different approaches to the issue create disagreements regarding the treatment of financial recession. The chief economics editor for the “Financial Times” Martin Wolf has predicted that, more or less, the G20 Summit will fail, while Britain's Finance Minister Alistair Darling expressed the opinion that no final word on response to crisis will be produced in London. However, the important for the upcoming Summit is to set the fundamental pillars which will strengthen world economy, invigorating markets and, moreover, create a better regulation of the international financial system.
It's a fact that the additional revenues that have been given to Bank companies, in automotive industries etc - in the E.U. (1.5% of GDP) and in the United States (3% of GDP) - have been generally proved incommensurate in both quantitative and qualitative terms. Indeed, in a crisis of overcharged banks, companies and households, the transmission of huge amounts of money from the state bills to companies and banks has a significant, negative, effect on the tax payers. Therefore, the households have to pay, indirectly but actually, for the purification of the “toxic” economic elements which have created the ongoing crisis. But, the reality is that such policies lead to important increase of unemployment and to intense protests of social character, as long as people feel that their vested rights are threatened by modern capitalism's dysfunction. Isn't that a fact?
A fundamental conclusion that has risen from the ongoing financial recession is that state's interventionism in economy is needed - it is the only realistic alternative solution to the crisis. But, that should not happen through heedless tax increase, decrease of salaries, diversion of social and economic inequalities and households' rapid overcharge. That because the important thing is the invigoration of people's purchasing power which could boost market's liveliness. On the other hand, the intervention of the state must avoid a possible increase of the public deficit which would create fiscal disequilibrium. It must be based on a new economic model, having as a driving force the enhancement of market's demand, the gradual redistribution of income (therefore, a rational taxation system) in relation with welfare state's improvement. On that point, the major objectives of the G20 London Summit are two: one short-term and one long-term.
The short-term objective, which is urgently needed, is nothing else but the minimization of recession's consequences. What the world leaders need to do in London is to reach a compromise that will reduce the crisis' duration in relation with the respective economic recession of 1929-1936. But, the important issue is to create such preconditions in order to avoid a future - possibly more intense - financial crisis. Therefore, the long-term objective of the G20 Summit is to set the base for the needed reforms in the existing international economic institutions. Intergovernmental organizations of co-operation, such as the European Union, must form a strong economic policy, which will not deal only with monetary issues and policies (e.g. Euro), but it will improve and invigorate its financial mechanisms.
A Summit will not, in any case, solve world's issues. The economic crisis will not end within two or three days of discussions. Because, indeed, the recent financial crisis is also a political crisis as long as no economic policy exists without political decisions. These decisions have to do with priorities set, social justice (or injustice) and an emerging model of socio-political leadership. The G20 leaders have to deal with these issues and try to reach the needed compromise. They have to clear the sky from recession's dark clouds and to chase out the spectre.
Published in OpEdNews (Progressive U.S. News and Opinion) on March 31, 2009.