G20 Summit: Another Non-Event?

Remember remember the fifth of November… When the G20 leaders could’ve and should’ve done better. Excuse my Guy Fawkes reference, but it seems like the recent G20 summit turned out to be a disappointment. Let’s take a look at what they came up with first:

During their meeting in Cannes, G20 leaders had a pleasant chit chat about the current state of the global economy. They acknowledged that there are plenty of economic challenges and threats to growth but they promised to work together to address these problems. They even made a pinky swear on it!

Aside from that, they also welcomed euro zone‘s game plan for the ongoing debt crisis in the region. They also drafted a two-page action plan for the global economy based on existing polices and previously stated goals. To cut the long story short, the recent G20 summit didn’t really result in anything groundbreaking as it left much to be desired.

For one thing, many were hopeful that the G20 leaders would come up with something more conclusive in terms of tackling the worsening debt crisis. Much to their disappointment, the official communiqué mentioned Greece and Italy only in passing even though political instability in those European countries dominated the airwaves prior to the summit.

Their communiqué contained the usual comments about the weakening economic recovery and the ongoing tension in the financial markets. Remarks about commodity price swings and persistent global imbalances were also thrown here and there.

But as with every dark cloud, there is a silver lining. At the end of the meeting, the G20 seemed to be very optimistic about the future economic prospects.

President Obama, for instance, said that despite the ups and downs, he was confident that the key political leaders in Europe would be able to get the crisis under control. Obama knows that Europe knows how grave and important the situation is and he believes that they’re not going to drop the ball.

In addition to that, IMF Chief Christine Lagarde said that the members would commit WHATEVER IT TAKES in terms of resources so that the IMF can handle the situation.

The G20 communique confirms this. It said that the euro area has strong determination to bring all of its resources and institutional capacity to make sure that confidence and financial stability is restored.

Perhaps, rather than actually come up with tangible solutions right away, the G20 is there for reassurance, that the higher ups actually are trying to do something. You could say they’re kinda like a support group!

What the G20 aims to do now is to check other options to increase the EFSF‘s flexibility. One option that some members are suggesting is to allow the use of SDRs, or Special Drawing Rights, in the fund. Another is creating a sort of trust fund to enable voluntary contributions (yeah, yeah, I know it sounds like a charity, but it is what it is).

With all this talk about the strengthening the EFSF, it appears that the G20 is more focused about making sure that the fund is able to deal with future financial problems. After all, the possibility of defaults has increased significantly in the past few months. Even though things are generally looking grim, I am hopeful that we’re going to get a happy ending out of all this.

Let’s see how things pan out, shall we?