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Factbox: Winners and losers at the G20 summit
TORONTO |
TORONTO (Reuters) - The Group of 20 ended a summit on Sunday saying its top priority was strengthening the shaky economic recovery and pledging to clean up debt-burdened public finances without stunting growth.
The group of major and emerging economies had different priorities going into the Toronto summit, and some were able to achieve more than others during the two-day meeting.
Following is a list of some of the winners and losers:
CANADA - DRAW
Host country Canada, arguing that its banks survived the world financial crisis without government bailouts, was a vocal lobbyist against a global tax on banks to fund future rescue packages, and a big winner when the G20 simply mentioned the idea of a tax as one option countries could adopt. Canada also saw the G20 endorse its push for specific deficit and debt reduction targets.
But the summit played poorly at home, where images of protesters torching police cars often overshadowed the political and financial discussions in the meeting itself.
Prime Minister Stephen Harper also came under fire for a $1 billion security bill and for the costly "fake lake" inside the media center. Billed as a way for visiting reporters to experience the lakeside landscape where the G8 summit took place, it turned out to be a small, square pool of water.
UNITED STATES - LOSE
U.S. President Barack Obama arrived at the summit on what White House officials hoped would be a triumphant note after House and Senate negotiators reached a final compromise on a bill that would bring about the most sweeping overhaul of financial rules since the 1930s.
But he left having achieved little on the fiscal issues that dominated the summit.
The United States was forced to give ground on European demands for a new emphasis on budget austerity, which it had warned threatened to torpedo the fragile economic recovery.
Obama also told G20 leaders that existing proposals in the Doha world trade talks did not meet U.S. needs and would have to change significantly.
CHINA - WIN
Beijing prevailed in its demand that draft language in the G20 communique praising China for enhancing exchange rate flexibility be removed from the final version.
Although it may seem odd to reject a compliment, China did not want the precedent of having its currency singled out, even in a positive light, in a formal statement by the G20.
China's victory on the issue was not total. If cautious officials in Beijing had not had the G20 to worry about, the Chinese currency might still be locked to the dollar. The threat of intense, coordinated criticism was crucial in pushing the government to depeg the yuan last week.
GERMANY - WIN
Germany insisted it faced no criticism for its budget-cutting plans, although it remains a G20 target as a trade-surplus country that needs to do more to boost domestic demand. In an interview with Reuters, Finance Minister Wolfgang Schaueble singled out public sector debt as a barrier to boosting domestic demand, and said the deficit cuts would help steer Germany to a path of sustained growth.
More broadly, German and other European officials looked like winners because they managed to tilt the balance in the final communique slightly toward the fiscal tightening side, and squeezed in that the Canadian consolidation targets accepted by the G20 were a minimum for advanced economies.
While Europe did not get global support for a bank levy, it did get G20 backing for some form of contribution from the financial sector to pay the cost of government interventions in that sector according to a set of common principles.
RUSSIA - DRAW
Russia pushed for reform of international financial institutions but no major advances were expected on that at the meetings. On most issues it successfully defended its position, but officials said privately that the nature of the big issues -- government deficits and slow growth rates in developed economies -- meant that Russia's position was peripheral.
BRITAIN - WIN
Prime Minister David Cameron can claim a win at his first G20 summit. He got some of what he wanted including implicit recognition in the G20 communique for his government's tough budget measures announced earlier this week.
Cameron also appeared to forge an easy relationship with Obama -- and even hitched a ride on the presidential helicopter -- and avoided a public rift over British oil giant BP and the costs of its Gulf of Mexico oil spill.
Cameron, 43, is cutting his teeth as a world leader and his Toronto outing appeared to mark a good start, even if he had to endure watching England's elimination from the soccer World Cup by Germany, in the company of Chancellor Angela Merkel.
BRAZIL - LOSE
Brazilian President Luiz Inacio Lula da Silva skipped the Toronto meeting, opting to stay home to deal with the aftermath of severe flooding.
The decision reduced Brazil's visibility at the meeting, a setback for a rising power that hopes to win a greater role in global affairs.
It also spurred the leaders of Russia, India and China to called off a meeting of so-called BRIC countries on the sidelines of the G20 summit, blunting at least temporarily their effort to present a united front in demands for more say in world financial institutions.
JAPAN - DRAW
Japan, which was against a global tax on banks heading into the meeting, took heart in the G20 saying the idea of a tax was optional. Japan has argued that its national deposit insurance scheme is an alternative to a bank tax.
But Japan will not be able to meet a target for developed countries to halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016. The communique welcomed Japan's recent fiscal reform and growth plans, but the special mention of the country's "circumstances" highlighted the dire state of its finances compared to its advanced peers.
Delegates played up efforts by Prime Minister Naoto Kan, Japan's fifth leader in three years, to build personal relations with fellow heads of state during his summit debut but this too put focus on the toll Japan's revolving-door leaders have had on diplomacy.
(Reporting by Reuters G20 team; Compiled by Andrew Quinn; Editing by Peter Cooney and Chizu Nomiyama)
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What a disgrace from Reuters.
Canada did bail out its banks. The difference between the way Canada did it and the methods of any other capitalist democracy is that Canada did it “off book”. In other words, it was never a federal budget item. Instead, the charge went against certain Crown Corporations as liabilities.
Sneaky? Yup. Dishonest? Absolutely.
Read this for more: http://communities.canada.com/VANCOUVERSUN/blogs/communityofinterest/archive/2010/05/24/the-canadian-good-banks-myth.aspx
In 2007 the Harper government allowed US competition into Canada which prompted the CMHC to dramatically change its rules in order to compete: it dropped the down payment requirement to zero per cent and extended the amortization period to 40 years. In August 2008 Flaherty moderated those rules in response to the US mortgage meltdown. CMHC then “securitized” an increasing number of its loans into bond-like investments (if you have a typical Canadian mutual fund, you’ve got some.)
At the end of 2007 there were $138 billion in securitized pools outstanding and guaranteed by CMHC –17.8 per cent of all outstanding mortgages. By June 30, 2009, that figure was $290 billion and by the end of 2010 it was $500 billion.
By Murray Dobbin 24 May 2010 COMMENTS(0) Vancouver Sun Community of Interest
Filed under: Harper, federal government, Murray Dobbin, CMHC, Flaherty, Conservative, Canadian banks, securitized, bail-out, banks, sub-prime
The sorry spectacle of Conservative cabinet ministers flying around the world defending banks from a tax to cover their next, inevitable, meltdown is bad enough. What is perhaps worse is that it is being largely justified by the perpetuation of the myth that Canada did not have to bail out its banks.
Wrong.
We are, according to the IMF, actually the third worst of the G7 countries, behind the US and Britain, in terms of financial stabilization costs.
First, we put up $75 billion to buy up iffy mortgages from the big five banks, through the Canadian Mortgage and Housing Corporation, taking them off the banks’ balance sheets. That is almost the exact equivalent the US bailout – it spent ten times as much, $700 billion, and its economy is about 10 times as large.
Secondly, the Harper government established a fund of $200 billion to backstop the banks – money they could borrow if they needed it. The government had to borrow billions – mostly from the banks! – to do it. It’s euphemistically called the Emergency Financing Framework – implying that our impeccable banks might actually face an emergency. It is effectively a line of low-interest credit and while it has not all been accessed, it’s there to be used. Could it help explain why credit has not dried up here as much as it has in the US?
Third, the government now insures 100% of virtually all mortgages through CMHC eliminating risk for the banks – and opening the door to the ridiculous flood of housing loans we have seen over the past few years. The result: housing has become unaffordable for tens of thousands of Canadians and new rental housing has dried up.
Why all this extraordinary effort?
If Canadian banks are such paragons of conservative virtue and prudent behaviour why did the federal government have to relieve them of mortgages that, presumably, were all carefully vetted and the borrowers scrutinized?
And why is Mr Flaherty not making any connection between the growing housing bubble (which he now reluctantly acknowledges) and the banks which lend virtually all the money (backed by CMHC) that is growing that bubble?
One of the reasons that Canadians (and international commentators, other finance ministers and global financial institutions) buy this Canadian banking fairy tale is the way the government accounts for the money borrowed to support the banks.
As Bruce Campbell of the Canadian Centre for Policy Alternatives explained in 2009:
“These measures are considered ‘non-budgetary’ or ‘off book.’ They do not show up as expenditures, which increase the federal deficit and debt. Rather, they appear on the books of CMHC and the Bank of Canada. But they have increased the government’s borrowing from $13.6 billion in 2007-08 to $89.5 billion in 2008-09, or double the fiscal deficit now projected for 2009.”
Not only has the Harper government felt it necessary to prop up Canadian banks it was this same government which created financial system risk in the first place. In 2007 the Harper government allowed US competition into Canada which prompted the CMHC to dramatically change its rules in order to compete: it dropped the down payment requirement to zero per cent and extended the amortization period to 40 years. In August 2008 Flaherty moderated those rules in response to the US mortgage meltdown. CMHC then “securitized” an increasing number of its loans into bond-like investments (if you have a typical Canadian mutual fund, you’ve got some.)
At the end of 2007 there were $138 billion in securitized pools outstanding and guaranteed by CMHC –17.8 per cent of all outstanding mortgages. By June 30, 2009, that figure was $290 billion and by the end of 2010 it was $500 billion.
In an effort to prop up the real estate market in 2008 (when affordability nose-dived), the Harper government directed the CMHC to approve as many high-risk borrowers as possible to keep credit flowing. CMHC described these risky loans as “high ratio homeowner units approved to address less-served markets and/or to serve specific government priorities.” The approval rate for these risky loans went from 33 per cent in 2007 to 42 per cent in 2008. By mid-2007, average equity as a share of home value was down to six per cent — from 48 per cent in 2003. At the peak of the U.S. housing bubble, just before it burst, house prices were five times the average American income; in Canada in late 2009 that ratio was 7.4:1 — almost 50 per cent higher.
While it was CMHC that insured these loans it was still the banks that put up the money. And they knew they were effectively sub-prime. How do we know? Because they avoided direct risk like the plague – in the two years from the beginning of 2007 to January 2009, the banks themselves took on virtually no new risk. According to CMHC numbers Canadian banks increased their total mortgage credit outstanding by only 0.01 per cent. But they were happy to put Canadian taxpayers at risk by lending to high-risk borrowers knowing their money was protected by CMHC.
Conservative? Prudent? Responsible? In a pig’s eye.
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