Further, the summit was successful in the sense that the communiqué contains nothing that will harm markets or finance. Even though there were many things the G-20 could clearly not agree upon — and as a result these have been kept out of the statement — even if they could implement those that have been agreed on, that will be big progress. It is also to be seen what the G-20 countries do now that the summit is over.

One of the first questions that will come up and test their resolve will be protectionism. Countries have agreed that they will not be protectionist, especially in the flow of capital towards developing countries. When unemployment rises, keeping such promises will be increasingly difficult. If the US and countries in Europe like France and Germany are able to resist the pressure to be protectionist, it will help ensure that the Great Recession does not turn into a Great Depression.

A regulatory structure with greater international coordination is a desirable goal but this is going to be the hardest to achieve. As of now, there is little consensus on what the steps to avoiding another such crisis are. So, for example, while some in India believe that banning sophisticated financial instruments like derivatives is the best way to protect the financial system, countries like the US and UK prefer better regulation to outright bans. The liberal view has won out at the G-20 meeting. The G-20 appears to be committed to modern financial systems. The communiqué says that hedge funds which have implications for systemic risk would be required to register and disclose information to regulators. The mood does not appear to be one of banning hedge funds. Nor are there suggestions that private banks are dangerous and banks have to remain in the public sector for ever to remain safe. The tenor implies that there is an understanding that failures in regulation, in compensation packages, in the conflicts of interest and lack of regulation of credit-rating agencies and in international coordination among regulators were at the bottom of the problems and these will need to be strengthened to prevent such problems. There is no mood to throw the baby out with the bathwater.

... contd.