The Risk Telescope — G20 outcomes analyzed
Rome is burning (but not as badly as London did in August), 951 cities in 82 countries see large protests against capitalism and finance, and the eurozone faces a growing crisis. The Financial Stability Board (FSB) released a report a few days ago stating clearly that OTC derivatives reforms are at best delayed and at risk of not being implemented as anticipated.
Yet G20 finance ministers and central bank governors never once used the word “concern” (or any related derivative) in today’s statement. Their two-page statement lists an impressively broad range of technocratic agreements and commitments, with only a passing reference to “heightened tensions and significant downside risks for the global economy.”
To be fair, resolution of the deteriorating eurozone situation was never on the agenda for this meeting. September’s ministerial and highly public brow-beatings were replaced with more determined, serious, low-key pressure on Europe to act. The U.S. veto power at the IMF was subtlety on display. The mood music may have improved since September, but the song remained the same: the world first begged and now demands that Europe deliver a concrete and credible end-game. The back-beat, however, is far more important: emerging markets and original IMF members are now openly jockeying for position in how to craft cross-border solutions. The framework that emerges this year as the event horizon approaches will define the form, content, and structure of sovereign risk analysis for the next decade.
Mixed messages were also the order of the day regarding financial regulation. Understanding the laundry list of initiatives requires having read the preceding year’s worth of status reports and recommendations from a range of entities that would be just as comfortable in an alphabet soup as in a G20 statement. A comprehensive picture was displayed, but transparency and a sense of priority/sequencing was sorely missing. Failure to agree on coordinated and convergent implementation of the original OTC derivatives regulation initiatives should raise serious questions about the G20’s ability to deliver on the more ambitious new workstreams related to macroprudential policy and shadow banking.
Section I of this The Risk Telescope focuses on macroeconomic policy and IMF issues raised in the G20 communiqué, which contemplates new instruments to address the eurozone situation despite U.S.-led rhetoric to the contrary. Section II untangles the various regulatory policy initiatives in the communiqué, highlighting which seem to be in trouble (most of them), which are getting traction (a precious few) and which are promised but not yet available for analysis. Section III concludes.
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