Stockholm Syndrome: G20 Pittsburgh

Swedish PM Reinfeldt

On the 17 September, Swedish Prime Minister Fredrik Reinfeldt hosted an informal meeting of EU heads of state and government in Brussels. At the end of it, common ground on three key issues was agreed upon.

The first was the recovery of the economy, public finances and ‘exit strategies’, which deal with the phasing out of stimulus measures. In the document setting out the agreed language for the G-20 summit, the need for a sustainable recovery and prioritising jobs is mentioned. At the press conference that followed the summit, Mr Reinfeldt explained that member states had agreed to formulate exit strategies now, but to implement them first when the economic recovery became clear: “The origin of the financial crisis was that banks incurred debts, so governments must not incur debts in order to emerge from the crisis. We must stand equipped for the next economic decline.” The agreed language also insists that the commitments agreed at the London G20 summit in April must be implemented.

The second issue identified was that of the banks’ compensation system. Given that politicians across member states have been stirring up public outrage for some time now on the matter, it was a predictable, if economically dubious, populist stance to take. Even Mr Reinfeldt, whose centre-right Moderate party governs Sweden, remarked “Enough is enough. We must move away from compensation for short-term successes.”

The evening’s third main matter was climate change and how developing countries’ measures to tackle it are to be financed. In the agreed conclusion text, the heads of state make reference to the European Commission’s figures, which indicate EUR 100 billion annually in the long term and EUR 5-7 billion in the short term, between 2010 and 2012. However, Mr Reinfeldt expressly cautioned that “Our demand to developing countries is that this money is met with reduction targets”.

A pledge to add EUR 50 Billion to the IMF’s coffers and a call for greater energy security were also made at the meeting. Interestingly, although the agreed language supports the reforms taking place at the IMF to give under-represented countries more of a voice, it also affirms that the current size of the IMF Executive Board “reasonably well reflects the trade-off between inclusiveness/legitimacy and an effective functioning of the Fund”. Perhaps Brazil would disagree, given that it has fewer votes than Belgium. As for energy security, European leaders called for the G20 to commit to greater energy security by increasing oil and gas market transparency and containing speculation. Although greater transparency in the oil and gas markets would indeed be very helpful to net importers, such as most European states, the effect of speculation on global energy security is insignificant. The statement seems to fit within the current trend of blaming the World’s problems on greedy bankers and reckless traders.

The G20 is made up 19 countries from around the World. The last seat is held jointly by the rotating Council Presidency of the EU and the European Central Bank. Combined with the votes of Germany, France, Italy and the UK, each of whom have their own seats, the European Union will have a very strong presence at the summit. If they can all stick to the positions the Swedes have so carefully drafted, then there is a strong chance that they will get what they want.