Leaders from the Group of 20 (G-20) countries are to meet in London on April 2 to discuss how to respond to the global economic crisis. The summit, which follows G-20 meetings in late 2008, has inspired heady expectations from policymakers and market watchers. Britain's Prime Minister Gordon Brown, for instance, surfaced the idea of a "global New Deal" (Sunday Times) coming out of the meetings. But given the scale of the world's economic problems, experts say expectations for the G-20 summit should be more modest. Similarly, they encourage world leaders to focus on immediate steps to restore market confidence. As for broader regulatory reforms, experts say the best outcome of the summit would be for leaders to set an agenda for developing long-lasting reforms, a process that could take years, without trying to enact changes in a hasty manner due to political pressures.
Types of Reform
Economists distinguish between reforms aimed at stabilizing markets and those aimed at revamping regulation. They say alleviating market concerns requires the most immediate attention. Regulatory reforms, by contrast, are more complex, require more forethought, and have little to do with stabilizing markets in the near term. The G-20 distinguished between these two types of reform in a communiqué following its November meetings in the United States--but experts fear political pressures could compel some leaders to try to tackle complex regulatory issues too hastily. Similarly, experts distinguish between problems that require international solutions and those that can be addressed by sovereign governments. Getting bad debt off the books of beleaguered U.S. banks, for example, requires a U.S.-specific solution. Ensuring against rising trade protectionism, on the other hand, requires international coordination, as do efforts to prevent against regulatory arbitrage, in which institutions pick and choose markets...