G20 leaders to discuss financial reforms

The leaders of the world’s largest economies begin two days of meetings today in search of a common approach to advance a fledgling economic recovery and prevent new financial meltdowns.

They face challenges, however, as they arrive with different priorities and less of an incentive to produce daring initiatives now that the global economy is slowly mending and the panic subsiding.

“Time is the enemy of reform,” US Treasury Secretary Timothy Geithner said yesterday in Washington. “As some normalcy returns to our financial system and our economy, we cannot let it be cause for complacency.”

Major issues that leaders gathering here are expected to tackle include capping bankers’ bonuses, overhauling financial regulation and plotting a future course for sustainable growth.

The Pittsburgh gathering, which follows G20 meetings last November in Washington and this past April in London, includes older industrial powers along with major fast-growing developing economies such as China, India and Brazil.

For some, the meeting comes at a delicate time: German Chancellor Angela Merkel faces an election at home on Sunday, and Japanese Prime Minister Yukio Hatoyama has been in office just over a week.

Dominique Strauss-Kahn, head of the International Monetary Fund, acknowledged in an interview with PBS’ News Hour with Jim Lehrer, that leaders were more amenable to working together when the world was scared.

“Will it last beyond the crisis?” he asked.“ ”That’s the big question. It has to for the sake of the global economy. Is it absolutely sure? I won’t say.“

President Barack Obama wants the G20 to agree to a new global framework that would force countries to radically change how they manage their economies and restrain dangerous imbalances that range from massive trade surpluses in countries like China, Japan and Germany, to massive trade deficits in the countries like the United States.

Many economists believe that it is such imbalances that helped bring about the world’s economic crisis. However, China is resisting the rebalancing plan, fearing that it could be used to attack its trade surplus policies.

The US president is hoping to mollify China by pushing to give it – and other emergency economies – a bigger voice in the International Monetary Fund.

The G20 has agreed in principle, but European governments worried about having to give up some of their IMF board seats and losing influence might resist the plan in practice.

The G20 leaders have promised to adopt rules that would curb the kind of risky practices many believe prompted the current crisis. But there, too, opinions on how to go about it differ.

The United States is pushing a proposal to require banks to hold larger amounts of capital, the reserves they use to protect themselves against losses.

The Europeans are pushing a different approach: Germany’s Merkel and French President Nicolas Sarkozy have sought caps on excessive bonuses paid to bankers, which they say rewarded risky behaviour.

France has moved to curb huge bonuses to its bankers, and is urging the other G20 nations and the European Union to follow suit so the French banking industry is not at a professional disadvantage.