Global summit straining for compromise in enlarged financial world

PARIS (AP)

The world's dominant economies on Saturday struck a watered down deal on how to smooth out trade and currency imbalances many say exacerbated the financial crisis, but the difficulty in getting vastly different economies like China and the United States on the same page doesn't bode well for the Group of 20 rich and developing countries as a forum for global decision making.

G-20 finance ministers and central bankers meeting in Paris agreed on a list of technical indicators to track those imbalances - caused by some countries consuming more while others tend to hold on to their money - but left the more tricky questions of when those imbalances actually become dangerous and what to do to mitigate them for later.

French Finance Minister Christine Lagarde, whose country holds the G-20 presidency this year, said the all-night talks had been "tense" at times, indicating the clash in national interests between countries that find themselves on completely divergent growth trajectories after the 2008 financial crisis that plunged the world into its worst economic recession in 70 years.

The result was a "balanced compromise (that) doesn't stigmatize any one country," Lagarde told journalists.

The G-20 itself is a recognition of the rise to power of nations such as India, China and Brazil, having supplanted smaller forums like the G-7 and G-8 during the climax of the financial crisis, when it achieved its biggest successes.

But since then - with some countries growing at an almost unprecedented pace while others remain in the through of recession - the G-20 has lost much of its swagger.

"What I was worried about - I'm sorry to say - materialized: which is that it's more difficult than it was before to have people agree," Dominique Strauss-Kahn, the managing director of the International Monetary Fund said of Saturday's compromise. "When they were really scared, they were happy to find a consensus. Now ... many believe - wrongly - the crisis is behind us and they have domestic concerns."

At the heart of the debate about imbalances is the realization that a decades-long global economic order centered on the U.S. buying exports from the rest of the world and running huge trade deficits, while countries such as China and Germany accumulate vast surpluses, is no longer tenable.