For G-20, Lofty Goals Have Fallen to Earth

CARRICK MOLLENKAMP STEPHEN FIDLER ALISTAIR MACDONALD

LONDON -- It was supposed to be the inauguration of a Global New Deal, in the hopes of British Prime Minister Gordon Brown, a comprehensive policy response to the world economic crisis, a root-and-branch effort to reorder the way capitalism itself works.

But by the time the much-heralded Group of 20 meeting of heads of government ends Thursday, it may be difficult to spot a new world order.

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Gabe Palacio

Gordon Brown

Six months ago, Mr. Brown, who will host the summit here, called for "a new Bretton Woods -- a new financial architecture for the years ahead," evoking the New Hampshire site where, in 1944, American and British officials mapped out the post-World War II economic order.

It is already clear that the summit will mostly fall short of Mr. Brown's original lofty goals. Over the past few days, European leaders continued to insist they wouldn't agree to U.S. and British calls for further fiscal stimulus for their ailing economies. According to a draft of the communiqué set to be released when the meeting adjourns, the G-20 leaders will tout a global bailout totaling up to $2 trillion, though that includes a host of measures already announced.

White House officials over the weekend sought to back off their once high hopes for coordinated global action. They played down fiscal-stimulus targets they were urging on Germany and other European nations earlier in the month and instead focused on more modest objectives, such as new rules for tax havens and international coordination for financial regulation.

Protests in London

Multiple issues will face President Barack Obama on his first trip away from North America: seeking more civil support from European nations for his "surge" in Afghanistan and Pakistan; confronting Iranian nuclear ambitions; maintaining Chinese support for buying U.S. government debt; and easing tensions with Russia over energy and missile defense.

On Saturday, protesters marched through London, waving banners and chanting, "Tax the rich, make them pay."

What emerges from this week's G-20 meeting "is expected to be a long way from the early high expectations," says Simon Gleeson, a London partner at the law firm Clifford Chance who has advised the U.K. government on financial regulation. "Even the little things seem to be contentious."

Where's Gordon?

In the week before the G-20 meeting, Prime Minister Gordon Brown took to the global stage to win support ahead of Thursday's summit.

• March 24, Tuesday

London Morning -- Brown and aides meet bank CEOs at Downing Street

Strasbourg Afternoon -- Brown addresses European Parliament, says President Obama is eager to work with Europe

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Gordon Brown, Madeleine Albright and Paul Volcker

• March 25, Wednesday

New York -- Brown, at Wall Street Journal breakfast, quizzed by Henry Kissinger; on a panel including Paul Volcker and Madeleine Albright, questioned by New York University students; meeting at N.Y. Fed; meets with U.N. Secretary General Ban Ki-Moon

Later -- Flies to Brazil

Associated Press

British Prime Minister Gordon Brown and Brazilian President Luiz Inácio Lula da Silva.

• March 26, Thursday/March 27, Friday

Brasilia -- Brown meets President Luiz Inácio Lula da Silva at presidential residence, they discuss naming countries that break free-trade agreements, swap tips about London hosting 2012 Olympics and Brazil hosting 2014 World Cup; speaks to business leaders in São Paulo, meets soccer legend Socrates; speaks at a university, falls asleep in his jeans at midnight, wakes up in time to shower, leave for Chile

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Argentine President Cristina Kirchner

• March 28, Saturday

Vina del Mar, Chile -- Attends Progressive Governance Conference, with U.S. Vice President Joe Biden, Argentine President Cristina Kirchner, Spanish Prime Minister José Luis Rodríguez Zapatero

Officials insist the summit of the G-20, which groups major developed and developing economies, will chalk up impressive achievements. "The things which people believed would never ever be changed, have changed. Quite historic changes," said Stephen Timms, financial secretary to the British Treasury.

This week, for example, Saudi Arabia, which has been lobbied by the U.K., is expected to contribute to the International Monetary Fund's finances. The oil-rich kingdom, along with new powers such as China, stands to get a bigger say in the IMF and in the regulation of global finance.

Governments and the IMF have agreed to provide hundreds of billions of dollars for hard-pressed emerging economies that have lost access to funding. Changes have been broadly agreed to improving the international supervision of cross-border banks, whose recklessness helped to create the crisis.

Yet rather than lead the world toward long-term structural change, Mr. Brown has refereed an unwieldy global debate over more immediate concerns, such as how much financial stimulus is advisable as the world digs out of the worst economic downturn since World War II.

In the six months since his bold declaration, the prime minister and his top economic advisers have circled the globe -- from Beijing to Riyadh and São Paulo -- in diplomacy aimed at building consensus for world-wide financial reform.

But they have been confronted with a stark reality: It is difficult to rebuild the global financial architecture when countries around the world are struggling to address their own growing economic woes.

Guarded Economies

Most challenging has been a push by governments to guard their economies by protectionism -- introducing a new problem that wasn't even on the table last fall.

Mr. Brown can partly blame his own lofty rhetoric if the talks fail to live up to expectations. Before he visited Washington this month, he spoke of a Global New Deal, echoing Franklin D. Roosevelt's economic program.

A Downing Street spokesman denies that Mr. Brown has moved from his earlier desire for a new Bretton Woods. "There have to be measures to make sure this crisis doesn't happen again, and that includes looking at the structure of international regulatory architecture," he said.

Mr. Brown's task has been further complicated by the change of administration in Washington, as President Barack Obama has struggled to fill senior Treasury positions.

Mr. Brown has sought to fill the void as host of this week's meeting. The G-20 has no permanent bureaucracy or staff to manage its activities. Its business is conducted behind the scenes by top advisers, or "sherpas," who consult with each other to reach agreements that can be endorsed during the meeting.

Team of Advisers

Mr. Brown's team is led by Jon Cunliffe, his top international economic adviser; Lord Mark Malloch-Brown, from the U.K.'s Foreign Office; Mr. Timms, the Treasury's main envoy; and Shriti Vadera, a former UBS AG banker and close aide to Mr. Brown.

Lord Malloch-Brown, 55 years old, has sped around the world, touching down in 12 cities including New York, Buenos Aires, Brazil, Bangkok and Moscow. Mr. Timms made six trips with other officials including the U.K. Treasury's own sherpa, Stephen Pickford. Last week alone, Mr. Brown darted to Washington, New York and Chile.

But even as he chased his international ambitions, the 58-year-old Mr. Brown, son of a Scottish minister, had to fight fires at home, where he must face an election by next year. They have included a multibillion-pound bailout of U.K. banks.

The push started with a hastily organized meeting of the G-20 in November. "What was preoccupying the leaders and their representatives for the most part was taking steps to address the financial crisis," says Daniel Price, a trade and investment expert who organized the meeting as a sherpa to then-President George W. Bush.

A call to reject protectionism was such a foregone conclusion that it was buried deep in the declaration issued at the meeting's end. The group stopped short of installing a surveillance system to monitor protectionist acts.

Protectionist Measures

But within weeks of the declaration, 17 of the 20 countries represented at the summit put in place protectionist measures, according to the World Bank. India placed a ban on Chinese toys while China nixed imports of Irish pork. The practice worsened as nations began matching each other's financial bailouts of domestic industries, with the U.S., France, China, Argentina and Italy installing direct or indirect subsidies for their auto companies.

Alarm bells on Mr. Brown's team went off in December as signals came through that global trade was collapsing and evidence emerged of a collapse in exports in Japan, Germany and Southeast Asia.

On Dec. 18, when the U.K. Department for Business Enterprise & Regulatory Reform hosted a team of all-star economists for a pre-G-20 planning session, combating protectionism was suddenly high on the list. Economist Richard Baldwin said: "I'm going to make an attempt at raising your anxiety levels about the importance of trade in this crisis," according to a transcript.

In late January, Mr. Brown spoke out against what he called "financial mercantilism," a reference to a view held centuries ago that countries could become richer by hoarding gold and keeping out imports. At the annual economic conference in Davos, he said that "if we do nothing" it would "lead to a new form of protectionism, a retreat of globalization and a reduction of trade."

But it was a different message from the one Mr. Brown began with. Gone was the sweeping rhetoric about new structures to regulate global financial players. In its place was talk of more specific incremental steps such as giving the Financial Stability Forum, a gathering of financial supervisors from industrialized countries, greater scope to avert problems in the global financial system.

As Mr. Brown's team raced around the world, they found that other G-20 players had other things on their minds as their own economies deteriorated.

On Feb. 20, Lord Malloch-Brown landed in Beijing on the heels of news reports that 20 million migrant Chinese workers had lost jobs in Beijing or the Pearl River Delta and were returning home. When Lord Malloch-Brown read the number in a briefing prepared by the U.K. Foreign & Commonwealth Office, he says, he thought it was a typo.

In meetings at the British ambassadorial residence, a pink-walled building besides the embassy in Beijing, a group of Chinese analysts and retired senior government officials were using the same figure. Lord Malloch-Brown says he recalls thinking as they munched finger sandwiches and cookies, "20 million people unemployed is bigger than the entire working population of even large European countries."

Arriving in Bangkok a short time later for a meeting of the Association of Southeast Asian Nations, Lord Malloch-Brown was confronted with data showing that some of its members saw their exports in January fall by as much as 30% from the year earlier. He began to see that the landscape was shifting rapidly toward a more urgent discussion of trade. Back in London in early March, he told a press briefing that the G-20 agenda had widened beyond better oversight the banking industry.

Saudi Backing

In Riyadh four days later, hoping to secure Saudi backing for G-20 aims including more money for the IMF, he encountered another kind of provincialism.

Saudi Finance Minister Ibrahim al Assaf reminded him Western governments had yet to acknowledge his country's efforts to stabilize oil prices, and pushed back at the notion of providing more assistance at a time when the price of oil was about a third of its peak. Saudi officials told Lord Malloch-Brown, "we will do our proportionate share but don't treat us as someone who should make exceptional efforts."

One reason why it has been so hectic for envoys such as Mr. Malloch-Brown and Mr. Timms is the sheer size of the G-20, a loose organization that emerged from small, intimate gatherings of senior finance officials from the U.S., France, Britain, Japan and Germany -- the Group of Five -- in the White House Library in the early 1970s. Since then, the group has grown, culminating with the G-20's creation in the late 1990s amid the Asian financial crisis.

"It's of course more comfortable to reach decisions with five or seven people," says Gordon Smith, a Canadian sherpa in the 1990s. "But then you don't have the right people around the table."

The Right Players

Having the right players has its costs. When the G-20 leaders met for the first time in November in Washington, they needed more than two hours simply to make opening remarks, according to one attendee.

In the final weeks before this week's meetings, Mr. Brown found himself fighting a multifront war to build consensus. He battled a growing chorus of critics, such as German Chancellor Angela Merkel, who warned against the push by Mr. Brown and U.S. leaders to further stimulate the economy. Problems flared at home, when Bank of England Gov. Mervyn King told Parliament the U.K. itself couldn't afford further stimulus efforts.

Mr. Brown has managed to win new consensus lately on one issue: the need to rein in tax havens. In recent weeks, countries including Switzerland and Liechtenstein have announced they would cooperate more with international tax probes, and this week's meeting is expected to produce new rules for oversight, transparency and conduct of offshore tax havens

The U.K.'s Mr. Timms cites the tax haven issue as evidence that the G-20's achievements will be significant, but some question the role of tax havens in the financial crisis.

Lord Adair Turner, chairman of Britain's Financial Services Authority, said it is "important to recognize that the role of offshore financial centers was not central in the origins of the current crisis."

—Margaret Coker and Jonathan Weisman contributed to this article.