Amid a deepening financial and economic crisis, leaders from the Group of 20 (G20) developed and emerging economies are due to meet here on Thursday for global solutions.
Expectations are high that they would be committed to a coordinated response to the crises, an overhaul of the global financial architecture and restraint from protectionism.
Crossroads for world economy
Nearly five months after the G20 leaders held their first summit in Washington, there is still no sign the financial crisis is fading away, while the world economy has been plunged into a recession due to its impacts.
The International Monetary Fund (IMF) recently painted a grim picture for the world economy this year. It forecast earlier this month that the world economy is set to shrink by 0.5 percent to 1 percent, the first-ever contraction in 60 years.
Billionaire investor George Soros warned on Saturday that the upcoming G20 summit in London will be a crossroad for the world economy.
"The G20 meeting is make or break because unless they do something for developing world there will be serious collapse in that part of the world," he said in an interview with British Broadcasting Corporation.
British Prime Minister Gordon Brown put the economic crisis high on the G20 summit agenda, aiming to build a global consensus on the economy.
But a transatlantic rift over the necessity of further fiscal stimulus appears to complicate efforts of the summit.
In response to U.S. pressure on the European Union (EU) countries to boost their fiscal stimulus, Czech Prime Minister Mirek Topolanek, whose country holds the current EU presidency, slammed U.S. plans to spend its way out of recession as "a road to hell."
Topolanek's blunt criticism exposed European differences with Washington and signaled a hard job for Brown to achieve greater international cooperation.
Playing down the transatlantic rift, British Foreign Secretary David Miliband said on Sunday Britain and the United States will not push G20 leaders to announce specific spending pledges.
In a preparatory meeting two weeks ago, G20 finance ministers and central bankers agreed to "take whatever action is necessary" to support the economy. They pledged to continue coordinated and comprehensive action to boost demand and jobs, adding the key priority now is to restore lending by tackling toxic assets in the financial system.
New global financial "constitution"
While turning a deaf ear to Washington's call for more fiscal stimulus, the EU is pushing hard for concrete results in reforming the global financial architecture.
The EU, led by Germany and France, has stressed that financial reform should be the top priority at the London G20 summit, saying it would not only help prevent recurrence of the current financial crisis, but also help rebuild confidence.
German Chancellor Angela Merkel called on Saturday for a "global financial market constitution" to improve regulation of the financial markets.
"We need a global financial market constitution as has not existed before, so that we can finally draw lessons from this disaster," Merkel said at a political gathering of her Christian Democratic Union.
In an interview with the Financial Times on the same day, Merkel said she expected "good results" from the London summit.
The EU hammered out a joint front at the London summit earlier this month, calling for regulation and oversight of all financial markets, products and participants that may present a systemic risk, including hedge funds, private equity, credit rating agencies and tax heavens.
Corporate remuneration practices, banks' capital requirement and accounting standards, which contributed to the current crisis, all need to be improved, it said.
There is also a call for reform of international financial institutions, in particular the IMF. The EU wants to improve IMF surveillance instruments in order to strengthen its key role in crisis prevention, boost the fund's lending resources and support a change of power sharing in the IMF by giving emerging economies a bigger say.
With their contribution to the world economy increasing, the emerging economies are justified to have a bigger voice in international financial institutions.
"We call for urgent action with regard to voice and representation in the IMF in order to better reflect their economic weights," Brazil, China, Russia and India, also known collectively as BRICs, said in a joint communique at the G20 finance ministers' meeting earlier this month.
They also called for a study on the role of international reserve currencies and enhanced IMF monitoring of developed economies since the financial crisis actually did not happen in developing countries.
"No" to protectionism
In the face of an economic downturn, there is an increasing risk that more governments would resort to protectionist measures.
Although the G20 members committed themselves to free trade at the Washington summit, not all of them have kept their words.
Concerns have been voiced over the so-called "Buy American" clauses in the newly-adopted U.S. economic stimulus package, which barred the use of foreign iron, steel and manufactured goods in public works projects funded by the plan.
Alarm bells have also rung in Europe after French President Nicolas Sarkozy said French car makers which received government help should keep domestic jobs first.
When rich countries spent massively to bail out financial institutions, they are required to put priority on domestic lending to help save the economy. This kind of financial protectionism has caused flight of capital from developing and emerging markets.
The World Trade Organization (WTO) warned on Thursday that a gradual build-up of protectionist measures threatens to strangle international trade and hamper global recovery.
"There is no indication of an imminent descent into high intensity protectionism, involving widespread resort to trade restriction and retaliation," the WTO said in a report. "The danger today is of an incremental build-up of restrictions that could slowly strangle international trade and undercut the effectiveness of policies to boost aggregate demand and restore sustained growth globally," it said.
WTO Director General Pascal Lamy urged the G20 leaders to make a strong commitment to avoiding trade restricting or distorting measures and working for a rapid conclusion of the long-stalled Doha round of global trade talks.
The WTO estimated that tariff and subsidy cuts for trade in goods already on the table in the Doha global trade talks were equivalent to a new stimulus package of 150 billion euros (about 195 billion U.S. dollars).
It had already warned that global trade would shrink by 9 percent this year, the worst drop since World War II, due to dwindling demand, while the threat of protectionism would only make the situation even worse.
After meeting Chilean President Michelle Bachelet in Santiago, Brown said that the London summit should send a strong warning against protectionism.
"One of the messages that must come from next week's summit is that we will reject protectionist countries, we will monitor those countries and name and shame if necessary countries that are not following free trade practices," he said.
Brown agreed with Brazil's President Luiz Inacio Lula da Silva on Thursday that they will propose at the London summit to create a 100-billion-dollar global fund to provide trade finance.
No matter what the G20 leaders could really achieve at the London summit, German Chancellor Merkel had already acknowledged there is no quick fix to all the problems.
"We are talking about building a new global financial market architecture and we will not be able to finish this in London," she said.
(Xinhua News Agency March 30, 2009)
