Members of the G20 summit, which opened last night in Toronto, will compare their strategies to avoid a relapse into recession, as the collapse of the Greek economy has dampened optimism about a quick and orderly exit from the crisis. Discrepancies occur in two areas: the magnitude of fiscal adjustment, driven by the main countries of the European Union (EU), and the taxes or controls on banks and financial transactions. Although the opponents of each of these measures and proposals are not always the same, the questions are: everyone is concerned about the risk of excessive budgetary restraint or an overly strict control of the financial system that will end up drowning credit and, therefore, economic recovery.
The main critic of the adjustment of the Europeans is the U.S., which has in this case with the backing of Brazil within the G20.The tax banking and financial regulation are also hot topics, and their advocates argue the need to avoid speculative reactions like those that triggered the financial crisis of 2007, which resulted in the worst downturn since the Great Depression 1929.
The tax proposal comes from the EU banking and has been rejected by the major emerging economies (BRIC: Brazil, Russia, China and India), as well as Australia and Canada, who fear an increase in the price of capital flows needed to finance their balance payments. Brazil also argues that banks do not have to pay for mistakes made by U.S. and European institutions. The U.S. has also advanced its financial reform plan, slated for approval next week by Congress. The project aims for a more severe control of the huge market of derivative products, in the middle of the crisis. The American Banking Association (ABA) tried to stop it, denouncing the “new restrictions” as an alleged conspiracy against their activity.
Large international banks are also looking to avoid an increase in reserve requirements (percentage of deposits that banks must mandatorily maintain immobile to cover their long-term debt). The Basel Committee (made up of the governors of the central banks) proposed an alternative, as revealed on Friday the British newspaper Financial Times, of accentuating the supervision process, to ensure that banks have available funds, without increasing reserve requirements.
Critics, such as the anti-globalization group ATTAC, denounce the pressures of ultra-liberalism, stating that, “The last meetings of the G20 launched recovery plans and massive aid to the financial and banking systems, but these were not subject to the new regulations”.