Friday 6. December 2019
#164 - October

 

G20 – A step towards better financial regulation

 

While the G20 debate on Syria stalled, notable progress was made on the regulation of international finance.


The G20 is a group of the world’s 20 biggest economies. At its latest summit in St Petersburg (Russia) on 5 and 6 September 2013, the discussion centred on Syria. However, economic issues formed the core of the agenda on the table. Apart from general topics, such as unemployment, international trade, corruption and climate change, the main focus was on better regulation of international finance

 

The lengthy G20 Leaders’ Declaration began by listing the main challenges to the global economy before detailing the measures and intentions of the 20 largest economies. Needless to say, they include financial market fragmentation in Europe as one of the risks to the global economy (and the decisive and speedy implementation of banking union). However, unlike the summit in Los Cabos (Mexico) in 2012, in St Petersburg the G20 set its sights not on Europe but on the emerging economies. On the sidelines of the summit, the BRICS countries set up a 100 billion dollar reserve pool, funded mainly by China, to stabilise the currencies of some BRICS members that have recently experienced capital flight.

 

Regulating global finance

However, once again the G20 has focused on the issue of rules for finance and the taxation problems faced by States in an era of globalisation. After previously endorsing new rules for the recapitalisation of all banks (Basel III), this time the Heads of State and Government made progress in resolving the problem of the 28 banks and 9 insurance groups identified as systemically important at world level. The failure of these institutions, one-third of which are based in the European Union, would pose a risk to the global economy. Public authorities are therefore called upon to save them in case of difficulties. This gives them an advantage for their own refinancing through lower interest rates and could possibly encourage them to take unnecessary risks. In response to this, the G20 has stipulated that national regulators should be strengthened until 2015 to enable them to implement the key principles of the Financial Stability Board (FSB), based in Basel (Switzerland), to resolve a liquidity crisis in any of the systemic financial institutions.

 

The G20 also adopted a roadmap to regulate for the first time the shadow banking system (e.g. hedge funds), which currently makes up nearly one-third of the financial system. The European Commission proposal, published on the eve of the St Petersburg summit, goes even further than the roadmap, and indeed some Europeans, including Italian Prime Minister, Enrico Letta, would have liked to see more stringent measures for this rather opaque financial sector.

 

As regards tax evasion, much of which is organised legally by multinational groups, the G20 gave its full support to a 15-point action plan developed by the Organisation for Economic Co-operation and Development (OECD) to counter tax base erosion and profit shifting. This action plan aims to ensure that, within two years, all profits will be taxed in the jurisdiction where they have been generated. The G20 members went on to agree to the establishment of an information exchange system to fight tax evasion more effectively. They plan to launch it in 2015 and the G20 finance ministers have until Spring 2014 to develop a global standard for tax information sharing, under the Australian presidency and with OECD assistance.

 

G20 – a prelude to global governance

Ahead of the St Petersburg summit, the international press had predicted a possible new milestone in multilateralism. In the event, the G20 summit posted the Syrian issue on its agenda, supplanting the United Nations Security Council as the main forum for discussing and responding to major geopolitical crises. However, the G20 is a body with no secretariat or legal status. It was created in 2008 to address the financial and economic crisis arising from the collapse of the Lehman Brothers bank. The economy and finance are therefore the core business and chief concern of the G20, and its recent undeniable progress in both areas goes to prove its usefulness. Nowadays the biggest impetus for the implementation of global governance comes from the G20. The St Petersburg summit was no exception.

 

Stefan Lunte

COMECE

 

Translated from the original text in French

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