G20 summit marks major shift in world order

Global leaders took their biggest steps yet toward a new world order that's less US-centric with more heavily regulated financial industry and a greater role for international institutions and emerging markets.

At the end the London summit, policy makers from the Group of 20 yesterday delivered a regulatory blueprint that French President Nicholas Sarkozy said turned the page on the Anglo-Saxon model of free markets by placing stricter limits on hedge funds and other financiers.

The leaders also pledged to triple the resources of the International Monetary Fund and to hand China and other developing economies a greater say in the management of the world economy.

"It's the passing of an era," said Robert Hormats, vice chairman of Goldman Sachs International, who helped prepare summits for presidents Gerald Ford, Jimmy Carter and Ronald Reagan.

"The US is becoming less dominant while other nations are gaining influence."

A lot was at stake. If the leaders had failed to forge a consensus - Sarkozy this week threatened to quit the talks if they didn't back much tighter regulation - it might have set back the world's economy and markets just as they're showing signs of shaking off the worst financial crisis in six decades.

That's what happened in 1933, when President Franklin D. Roosevelt torpedoed a similar conference in London by rejecting its plan to stabilise currency rates and in the process scotched international efforts to lift the world out of a depression.

Seeking to avoid a repeat of that historic flop, President Barack Obama junked the at-times go-it-alone approach of his predecessor, George W. Bush, and adopted a more conciliatory stance toward his fellow leaders.

"In a world that is as complex as it is, it is very important for us to be able to forge partnerships as opposed to simply dictating solutions," Obama said after the summit.

In an effort to promote harmony, Obama soft-pedalled earlier US demands that the summit agree on a specific target for fiscal stimulus in the face of opposition from France and Germany. Instead, he settled for a vague pledge that the leaders would do whatever it takes to revive the global economy.

The president also signed on to a communique that Nobel Laureate Joseph Stiglitz said repudiated the previous US-led push to free capitalism from the constraints of governments.

"This is a major step forward and a reversal of the ideology of the 1990s, and at a very official level, a rejection of the ideas pushed by the US and others," said Stiglitz, an economics professor at Columbia University.

"It's a historic moment when the world came together and said we were wrong to push deregulation."

In bowing to that view, the leaders conceded "major failures" in regulation had been "fundamental causes" of the market turmoil they are trying to tackle.

To make amends and to try to avoid a repeat of the crisis, they pledged to impose stronger restraints on hedge funds, credit rating companies, risk-taking and executive pay.

"Countries that used to defend deregulation at any cost are recognising there needs to be a larger state presence so this crisis never happens again," said Argentine President Cristina Fernandez de Kirchner.

A new Financial Stability Board will be established to unite regulators and join the IMF in providing early warnings of potential threats.

Once the economy recovers, work will begin on new rules aimed at avoiding excessive leverage and forcing banks to put more money aside during good times.

German Chancellor Angela Merkel, who had unsuccessfully sought to convince the US and Britain to sign on to similar steps before the crisis began in mid-2007, hailed the communiqué as a "victory for common sense."

The US took the lead in getting the summit to agree on an increase in IMF rescue funds to US$750 billion ($1289 billion) from US$250 billion now.

Japan, the European Union and China will provide the first US$250 billion, with the balance to come from as yet unidentified countries.

- BLOOMBERG

THE TWO LEADERS WHO GOT AWAY

There is no photo of all the leaders at the G-20 summit in London.

The Prime Ministers of Canada and Italy were otherwise engaged.

When the leaders were summoned for the traditional photo opportunity, Canada's Stephen Harper was being briefed by advisers.

"I've been to enough of these to know there's always another photo op," Harper said smiling when asked about it later.

And there was, and Harper enjoyed a joke with President Barack Obama and French President Nicolas Sarkozy.

But this time Italy's Silvio Berlusconi was on the phone and he missed the photo, too.

- AP