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Transcript by
Federal News Service
Washington, D.C.

OPERATOR:  Excuse me, everyone.  We now have Frank Kelly, the Atlantic Council board member and managing director and head of government affairs of Deutsche Bank, Americas; Nicolas Véron, senior fellow of Breugel Institute; Dan Price, senior partner for global affairs of Sidley Austin LLP; and Angel Ubide, director of global economics at Tudor Investments on the line. 

Please be aware that each of your lines is in a listen-only mode.  At the conclusion of the presentation, we will open the floor for questions.  At that time, instructions will be given if you would like to ask a question.

I would now like to turn the conference over to Mr. Kelly, who will be followed by opening remarks from the panel.  Mr. Kelly, you may begin.

FRANK KELLY:  Thank you, operator, and thank you, everybody, for joining today.  I’m Frank Kelly, and as our kind operator introduced me already, I’m the head of government affairs for the Americas at Deutsche Bank.  I’m also a board member of the Atlantic Council. 

I am proud to be opening our latest event this morning entitled “Mapping the Economic and Financial Future” in the post-G-20 meetings here.  This is a – we’re proud at Deutsche Bank to be a host of this event with the council’s Global and Business Economics program.

This is, again, a part of a series and the purpose of the series is to develop the intellectual basis for understanding the financial crisis, and search for solutions that will restore global financial system and global growth to where we all want it to be.

So we are in one of the – our effort here is to gather some of the world’s greatest minds to enrich this debate, and we can think of no better than the three folks who are on this phone.  They’re excellent, excellent experts at this:  Dan Price, Angel Ubide and Nicholas Véron of Bruegel. 

I want to make very clear to everybody the remarks are on the record.  They’re on the record, not off the record.  And so, please keep that in mind.  And I think we will jump right into this and not waste any more time here, as we want to try and probably wrap this up just about 11 o’clock.

November has been quite a tumultuous month for the world – the U.S. elections, change in political landscape here in a significant way.  And the Federal Reserve has begun QE2, the second round of quantitative easing, which has generated tremendous tension in Europe and now as many merging markets – and as we saw in the news today, a number of Republican economists and Republican members of this new Congress agitating with the Fed to have it cancelled.

Europe is struggling with its own debt crisis, particularly in Ireland where it has flared, and pushing all of Europe into deeper water, and threatening to pull Portugal and Spain along with it.  In the middle of this, the leaders of the G-20 met in Korea to try to keep the momentum on financial reform going and to maintain a cohesive – and maintain cohesion among the group in the face of powerful centrifugal forces.  Our panel today has varied and deep expertise to help us understand how all these issues intersect, how they may play out, and what the G-20 can do about any of it. 

I’m going to turn first to Dan Price here.  Dan, you’ve had a lot of experience working within the G-20.  What’s your view about Thursday’s summit?  What qualified as a successful summit and how did the group perform?  And then also, how have the U.S. and Europe done in leading this process, or maybe perhaps not?

DAN PRICE:  Thanks, Frank.   Those are very interesting questions.  I will try and address some of them.  Let me take two cuts at this, first from the perspective of the United States, and then kind of institutionally, from the perspective of the G-20, what it was kind of founded to do and what it’s evolving to do.

From the perspective of the United States, I would say this was quite a difficult summit.  Really, once QE2 was announced and later supported by the president, there was little chance of agreeing at the summit on more rigorous metrics and monitoring for exchange rates and current account balances.

The Fed’s action, whatever its merits for the U.S. economy may be – and that will continue to be debated – had the effect of alarming developing countries who feared the consequences of a cheaper dollar, and also opened a rift with developed countries such as the U.K., Canada and Germany, who had cast their lot with fiscal discipline.  As a result, whatever collective appetite there may have been for pressuring China on currency appreciation really dissipated. 

For the G-20 generally, I would say this:  In fact, very little was done by the leaders themselves other than endorse the prior work of ministers and the standard-setters, such as the Basel Committee and the Financial Stability Board. 

So I think that post-crisis, that is in contrast to what was done in the Washington summit in 2008 and the London summit in 2009.  Post-crisis, we should not expect G-20 summits themselves to yield consequential new deliverables, but we should view these meetings instead as part of an ongoing and I would say incremental process with periodic leaders meetings akin to a board of directors, taking stock of prior actions and providing political impetus and direction to the work of ministers and international standard-setters.

Where did we get to?  I would say the work that was done and then ratified by the leaders on the Basel Committee on enhancing the quality and quantity of capital was certainly positive, but there’s a lot of unfinished business, particularly on “too big to fail.”  And I will listen with great interest to Nicholas’s remarks on this, particularly in the context of the signals that have been sent by Tim Geithner before the summit and by Lael Brainard, and by incoming financial services chief in Congress, Congressman Baucus, who all have sounded the alarm about competitiveness concerns.

That is, if the United States, under Dodd-Frank, goes forward with measures unilaterally to enhance the loss-absorbency capacity of so called “too big to fail” institutions, or goes ahead unilaterally with Volcker Rule measures, it could significantly impair the competitiveness of U.S.-based institutions with respect, in particular, to the continental European competitors.

Why don’t I stop there, Frank, and I will listen with interest to the others.

MR. KELLY:  Thank you, Dan.  Let me turn to you, Angel.  You’ve been talking to a lot of people in the markets about – and particularly also the governments in emerging markets.  What is your sense of how they saw the summit, and what did they want from it, and what did they get from it?  And, lastly, what do they want going forward?

ANGEL UBIDE:  Thank you.  And thank you, everybody, for being here.  I think what we are witnessing is for the first time in several years a situation where emerging markets feel they have the upper hand.  And they feel they have the upper hand because over the last 10, 15 years they have been responding to their crises in the late 1990s with tough structural reforms and a very good sense of disciplining and implementing a new policy framework.

And they have realized that the crisis of the last two or three years was essentially something they didn’t create, that it was not supposed to be like that and they’re paying a heavy price for it.  And what they realized – and the outcome of this summit perhaps is a very good example of this – is that, you know, some of the G-7 countries are definitely going to do what it takes to fix their economies and their policymaking framework the way it should be.

And so, they are reacting with something close to anger because they see themselves in a situation where the G-7 is trying to impose on them a tough, if you want, supervisory reform which may be adequate to fix the regulatory situation in countries like the U.S. and others where there were plenty of things to fix, but it’s not necessary in other countries in the emerging world, or even not emerging world where they have – (inaudible) – working the past decade.

And the same thing applies to the cyclical policy setting.  They see the new round of quantitative easing here in the U.S. as creating a lot of negative spillover into their economies.  They are going to have to deal with huge capital inflows because, let’s not forget, I mean, the G-7 as a whole has an interest rate that is somewhere between 0 and 1 percent, and that is generating a lot of capital flows that are moving around the world and going essentially to emerging markets.

And they will have to deal with them either with measures such as capital controls or more resource accumulation or with macro prudential measures that are going to be targeted at making sure that the financial institutions are able to integrate these very strong capital flows in a safe manner, and it’s not going to be easy.

They have a point.  This could have been done in a different way.  Perhaps some policies should have not been monetary things but could have been reforms or fiscal adjustments, and it’s quite difficult to see whether there is any meeting of the minds now between the emerging world and the developed world.  And I think that will – (inaudible) – quick.

MR. KELLY:  Excellent, Angel.  Thank you.  I think that really encapsulates it.

Let me turn to you, Nicholas.  Your work is focused intensively on the rules and regulations that the G-20 and others are crafting to improve the functioning of the financial system.  Where is the G-20 in its work?  What has it accomplished?  What are the issues that still need to be worked on?  And how are the U.S. and Europe doing in advancing this work together?

NICHOLAS VERON:  Yeah, thank you.  I think I should start by emphasizing and perhaps developing a bit on what Angel just said about the relationship between developed and developing countries, and the general dynamics within the G-20 from that respect.  It was perhaps, even more than the previous ones, a humbling moment for the West and a moment where the West cannot claim a lot of leadership. 

And I think that was particularly visible in the context of the Seoul summit with the fact that it came just after the mid-term election in the U.S., which, independently of the partisan dynamics, emphasized the deep contradictions that face forthcoming economic policy decisions in the U.S., and the fact that there was intense volatility in the European bond market at the time of the summit and that, as I understand it, a lot of attention was devoted not only by European leaders but by all leaders during the summit whose ongoing development as regards Ireland and so on – which certainly underlined the fragilities of the European Union at a time when it would like to be in a position to lead, but it’s not.

So basically we have this context where the West is not on a position to lead the East, or the emerging markets are not ready to lead and there is a general lack of leadership in the G-20, to put this in an over-simplistic way.

As far as financial regulations more specifically, I think what’s remarkable is the contrast between the Seoul summit and the Washington summit two years before where Dan was around and which was the first G-20 summit in its current format of heads of state and government, which was almost entirely focused on financial regulation. 

Financial regulation in this Seoul summit was not exactly a footnote but certainly a very secondary concern.  So there are different ways of looking at that one as, well, basically the work is done, and that’s partly true.  The other way to look at it is basically it’s been a failure and the ambitious aims of the Washington summit have not been followed by adequate implementation, and that’s also partly true.  And I think Dan was right to insist that leaders in this summit did little. 

Now, they did little but they were not ineffective in the sense that deadlines imposed by the G-20 had an impact, especially on the Basel Committee, and I think we wouldn’t have a Basel 3 Accord.  Well, it’s debatable how far it goes but it’s certainly better than what it replaces.  We wouldn’t have it at this moment if there hadn’t been so much pressure on the timetable exerted by the G-20.

So from that standpoint, the Basel Committee has done its job.  It has delivered something, and something that is much more than nothing.  So I think here it is an achievement for the G-20 and for the Korean presidency.

On SIFIs, or “too big to fail,” systemically important financial institutions, many people have – (audio break) – disappointing or failure because the Financial Stability Board basically kicked that can down the road, said – (audio break) – very important in the approach that was suggested by the Fed – (inaudible) – last week, which is a vision of subsidiarity, to use European jargon, i.e. the fact that you do, at a global level, only those things which can really, really not be done at the more local or regional level, namely the idea of global SIFIs, you know, the new acronym, G-SIFIs, which means basically global investment banks, those which are operating in a global market mainly on wholesale financial activities.

And I think that’s an important development because that’s the first time that, in this global regulatory context, there is a clear acknowledgement that basically the global efforts of the G-20 should concentrate on those firms whose activity is truly global, and this is mainly the wholesale space because in retail banking, actually firms like, you know – (inaudible) – there or others can, to a certain extent bring sense and operate on different terms in different national markets.

So I think this is progress.  Even so, there is no real action in terms of the more limited, more modest vision of what a global regulation can achieve.  It has to concentrate on those firms which are really global in their scope that I think that’s the right approach.  So I view that rather positively. 

I think if there is one lesson from the summit – and I’ll stop there – it’s that there will not be a global harmonization of the financial rulebook.  There is no such thing as a global financial rulebook.  We are moving towards a European financial rulebook in the EU, but this cannot be extended to the global level.  So the aim for global financial regulation has to be much more targeted, much more moderate, and in a way that’s a direction that the G-20 is taking. 

MR. KELLY:  Excellent.  Thank you very much, Nicolas.

Operator, I want to open this up now for questions from the audience here, from the folks who have called in.  Maybe you could explain to them again how to dial in for questions?

OPERATOR:  Yes, I certainly will.  Okay, at this time we will open the floor for questions.  If you would like to ask a question, please press the star key followed by the 1 key on your touchtone phone now.  Questions will be taken in the order in which they are received.  If, at any time, you would like to remove yourself from the questioning queue, press star 2.  Again, for questions that is star 1. 

ALEXEI MONSARRAT:  Thanks a lot.  And this is Alexei Monsarrat at the Atlantic Council Global Business and Economics program.  I’ll be helping moderate the question-and-answer session. 

I do want to remind everybody again that this is an on-the-record discussion, so you should bear that in mind when you are formulating your question or any comments that you might want to make.  While we’re waiting for the queue to get loaded up, I’ll go ahead and take the liberty of asking the first question. 

I sort of noticed between the different pieces of the discussion that we – it sounds like in a way there are two tracks that the G-20 is moving on.  You’ve got the technocratic, technical work that the working groups are doing and that were established in 2008 and that’s been going on sort of along the same lines, yet every summit we always see some large political issue crop up, as is inevitable when leaders are involved because they have to do something.

Dan, you suggested that maybe the leadership would become more like a steering group and that we should not expect deliverables to come up.  I would ask you first, do you think that’s possible?  Do you think that leaders and the other governments can resist the temptation to create deliverables? 

And then, I would also turn – well, others, anybody who wants to comment, maybe Angel first, on, you know, is that the same thing that the emerging markets want to see, or do they want to see deliverables continue to happen, particularly given that the United States and the other developed economies are the ones that really have some work to do.  I could see where they might want to keep some pressure on.  So I would be interested in views.

MR. PRICE:  Thanks, Alexei.  It’s Dan here.  I think if we want to preserve the utility of the G-20, we need to dial down the expectations.  In the first instance, this requires self-discipline by the host of this summit, since hosts traditionally want kind of headline items. 

But, as I said, I think the G-20 going forward will function best if it does act as the board of directors or steering committee.  And I would say I don’t think this is necessarily a developed country view.  Montek Singh Ahluwalia, who is the G-20 sherpa for India, at the Bahrain Global Forum just about a year ago, voiced the same perspective; that is that the G-20 has an important and useful role to play but it should be one of coordination, review and tasking further work.

And the expectation should not be that every time they meet there will be some large and consequential new initiative.  And I would just underscore what Nicolas said, that the task – I’m sorry, the role of providing political impetus and political energy to the work of standard-setters should not be understated.

MR. UBIDE:  It’s Angel here.  Yeah, let me just reinforce exactly what Dan was saying.  I think the world has got the wrong impression of the G-20 because it was started with a bang.  It was essentially the forum where the big coordination of a fiscal stimulus back in 2008 took place, where, thanks to the G-20, we could get the whole world expanding fiscal policy by two points of GDP. 

It just happened that it was the right subject for the right group of people and that everybody sort of made it that kind of cover, if we want to call it like that, to be able to implement that policy.  Now, realize it’s different from that.  It’s much more difficult now to find common points of agreement, common problems and common situations where they can all get together and deliver a common response. 

So I would say that the success of the G-20 on fiscal policy was probably the exception to the rule and the more normal way of functioning of the G-20 is going to be one where there is more peer pressure, where there is more, simply, discussion of issues, and every now and then we will be able to get a breakthrough, and that would be really good.

MR. VERON:  Nicolas here.  I would add that on the metaphor of the board of directors, the board of directors doesn’t run day-to-day operations but it does make decisions on major investments, on major partnerships.

I think that analogy holds and the G-20 will not run fiscal policy for its member states but it is ostensible, if you want to repair or maintain or develop infrastructure of global financial bodies, and we have the IMF, the BIS, the SSB, the standard-setters.  All these bodies require reform.  IMF reform is one of the biggest successes of the Seoul summit.  I think it was not pre-ordained, so it is a step while even so much remains to be done, and the same should apply to other global financial public bodies.

MR. MONSARRAT:  Great.  Thanks very much.  I’ve got Reginald Dale from the Transatlantic Media Network, who has a question.

Q:  I’m with the Transatlantic Media Network at the CSIS in Washington.  I’ve got a longer-term question.  At the time of the first couple of meetings of the G-20 summit, there was a certain amount of thought that this was experimental and it might not work and maybe this institution will be good for a few years and then something else will come along.

So my question really is, is the G-20 now here to stay?  And I’d be interested in the views on Sarkozy’s comments that the G-20 foreshadows the planetary governance of the 21st century.  Has it established itself as a viable form of governance, and do we have the right mix of countries in there?  And if not, is it too late to change?

MR. MONSARRAT:  Thanks a lot.  I’ll turn to our resident Frenchman to see if we can get answer to Sarkozy question and then let others come in.

MR. VERON:  Well, let me add that I’m a trans-Atlantic Frenchman because I’m also a visiting fellow at the Peterson Institute, for the sake of completeness.  While I think the outline we gave of the sort of board of directors metaphor is not exactly the same as the vision of the G-20 as an embryo of world government.

I think in the French rhetoric you have a lot of expansion of the usual French rhetoric about the EU expanded to the global level.  I’m not sure that this corresponds to actual policy.  And the truth is we know fairly little about French actual policy proposals for the next presidency, and that’s probably a good thing because, again, the presidency is not more than just the host.  And we saw that this year; we saw that the year before.  So I would just count it as of the rhetoric, I guess. 

MR. UBIDE:  It’s Angel here.  If I can just make a quick comment.  I think we should think of the G-20 in a similar was as the European Union, right, where there is a group of countries with broadly similar ideas and objectives that have come to the table to discuss and then they have very different policy objectives domestically.

And so, the question is to be able to reach a common denominator.  You can think of the G-20 as having three groups.  It’s the U.S., the EUR-IA (ph) and the U.K. that were those who suffered the shock of the crisis of the last three years the most. 

Then you have some developed countries who didn’t suffer it directly but are suffering some of the spillovers, like, you know, Canada, for example, but also the countries like Australia or Japan, who are there, have common interests with the first group but don’t necessarily have the need to reform or to move ahead with reforms in the same way.  And then you have the emerging markets. 

So how do you get these three groups to work together on something?  And you get them to work together but having some common principles about what policies should be about and then try to implement these in small steps.

Q:  Do you think we have the right mix of countries in the –

MR. PRICE:  Mr. Dale, it’s Dan Price here.  I think you’ve asked a very good question and I think, you know, perhaps a little historical note might be useful.  In the fall of 2008, when President Bush decided to hold a leader’s summit to deal with the financial crisis, there were some who thought it should be a relatively small group such as the G-8-Plus perhaps, the so-called “Outreach 5” – Brazil, India, China, Mexico, South Africa. 

The president felt very strongly that we needed a more representative group, that though the immediate impacts of the financial crisis might be felt, at the time, chiefly in the developed world, it was rapidly evolving into a larger global economic crisis, and therefore that the agenda of both financial regulatory reform and institutional reform needed to be formulated and embraced by a broadly representative group of developed and developing countries.

Given the timetable for putting together the summit, rather than create a new ad hoc body, the president decided to elevate what had been a finance ministers forum to a leaders forum for that first summit.  But we understood at the time and the – (inaudible[27:38]) – understood at the time that this was the beginning of a process.

And so, if you look at the action plan that was there agreed, it clearly contemplated a number of future meetings, both at the leaders level, and a refinement of the work plan on both financial regulatory reform and institutional reform. 

Do we have the right countries around the table?  Certainly many of them are the right countries.  Are there too many?  Perhaps.  Are there countries who should be there who are not?  Yes, but part of that was addressed by noting that, for example, the Basel Committee and the Financial Stability Board include representatives who aren’t formally part of the G-20. 

My own view is that the G-20 or something like it is here to stay for the foreseeable future and will have an important role to play.  Again, it’s up to the host as to who is invited, and the host plays a significant role in shaping the agenda.  Whether that choreography should continue or whether a G-20-type institution should have a secretariat that plays more of a role than the particular host, that all remains to be worked out among the parties.

MR. MONSARRAT:  Let’s turn now to Hilda Ochoa-Brillembourg.

Q:  I’m president of Strategic Investment Group at Global Investment Firm.  I want to get a little bit of color as to what was the subtext that is emerging out of these G-20 meetings along the following lines: 

If the 20 years ending in 2008 were the years of free market economics, in which we were disappointed by the amount of leverage and abuse in many of the financial sectors, are we now beginning to see – and this would explain, by the way, why no one is willing to take the leadership – the emergence or the beginning of a need in the minds of many of the players for kind of an emerging planned consensus type of alternative to the Washington consensus?

What I mean by that is the economies that seem to have gone very well are clearly China, and many of the emerging economies that sell goods to China.  Singapore has done well.  What would appear to be the case – of course, the reason why these economies have done well is because they didn’t engage in as much leverage because they were the surplus-exporting countries, et cetera.  Russia; they were natural resource producers.

So is the subtext that is beginning to emerge is that we might need maybe more academic research as to the newest roles of government in nudging economies towards a particular end?  And that’s actually what we’re facing.  That’s kind of the identity crisis that you are observing now in the United States and we don’t have the academic underpinning to think of what would be the alternative to free-market economics, for which there was an enormous amount of economic modeling prior to the fall of the Berlin Wall.

MR. MONSARRAT:  Thanks.  Angel, I would be interested to start with you on that, just again from where you’re seeing – well, emerging markets but obviously you deal with a whole – feel free to –

MR. UBIDE:  Thank you, and thank you, Hilda, for that question.  I think it’s clear that we need to think deeper about how the world operates, right, and we seem to have come full circle in the issue of the move towards liberalization, having perhaps a – (inaudible[32:02]) – date and now coming back to see, where are the areas where there is more need for some goal or maybe intervention here or there?

But I think, at the same time, if we think about it, I think we have also come full circle in the sense that we have all the emerging market crises in the ‘80s and in the ‘90s, and the G-7 told those countries, you need to fix your economies and your policymaking framework following our – you know, not our instructions but our best understanding of the way it should be done.  And the emerging market world delivered. 

In the meantime, some in the developed world did not adjust their policymaking instructions in the same way.  And I think that’s a critical thing.  It’s not even an issue of whether there should be more or less government intervention or whether we are ending the era of free capital flows because some emerging markets have put in capital controls.  It’s a question of saying that the G-7 – and by the G-7 really I’m talking about the U.S., the U.K. and EUR-IA (ph).  Do they have the right policy frameworks in place?  Are they up to the task of catching up with the emerging world?

And I think this is the key – (inaudible[33:18]) – here.  The emerging world was catching up with the developed world on policy framework for a while.  Now is the time to complete the circle by getting the G-3, in that sense, catching up with the emerging ones.  And that is the big debate that I think we are having. 

MR. PRICE:  Now, if I could say, I agree with what Angel said, but I also think the question overstates the problem.  I don’t think we are seeing an abandonment of liberalization.  I don’t think that there is any inherent contradiction between proper regulation, which may have been missing, and financial services liberalization.

I think the enormous success of many of the emerging markets is attributable to the liberalization in the trade and financial markets that we’ve seen over the last 20 years.  So I think it’s kind of false choice to say, well, are we going to move away from free-market principles and open economies or are we not?

MR. VERON:  Nicholas speaking here.  I agree.  I think actually the way you can look at things at this point is a convergence not a reversal of trends.  It’s a convergence because the emerging markets are still in the process, broadly speaking, of liberalizing.  I mean, China recently introduced CDS, which didn’t exist before, you know.  Many of these breaks or last-emerging countries have massively underdeveloped financial systems and they want to develop them more and develop credit allocation through a degree of stabilization. 

At the same time, there has been a failure of the ideology of totally unfettered financial markets in the West, but this was more ideology than actual policy framework because these markets nominally have always been regulated.  (Inaudible[35:35]) – was a regulator and supervisor at Baylor (ph), which was partly linked to the excessive ideology that, you know, markets could take care of themselves, which they won’t. 

So if you have these two movements – re-regulation in the West and the pursuit of liberalization in emerging countries – at this point looks like convergence.  Of course, that’s an interesting question, what happens when the two cross, but we’re not yet there.

So I don’t think we’re replacing the Washington consensus with the Beijing consensus or anything like that.  Markets need regulations.  This is old wisdom; it’s not new.  And, as I said, it’s about pragmatism in operating within this framework.

On the previous question of the mix of countries in the G-20 – and without raising the whole debate again – I would say the G-20 is only as legitimate as it is deficient.  If it is seen as making a difference, making impacts to constructive decision-making as it was, for example, during the London summit, nobody will ask whether, you know, Argentina should be out or the Netherlands should be in. 

Now, it’s not a treaty-based organization.  It cannot be, almost by design.  And it’s not legitimate from its structure.  So in my view, the mix of countries is good enough for most topics.  It’s not the right mix for currency issues because the eurozone is not represented as such, and way too many countries to discuss global currency.  So maybe we need a different format for currency, but that’s just a thought.

MR. MONSARRAT:  Thank you.  It’s interesting that there is the phrase “the sole consensus,” I think, in the –

MR. VERON:  For development.

MR. MONSARRAT:  – in the document.  So people are making a run at this but I’m not sure if we’re quite there yet.

I’ve got Marisa Doppler from IBM in Germany.

Q:  Yes.  Thank you.  I’d like to come back to the future role of the G-20.  I recently heard that the G-20, I think it involved turning back issues like financial services to those institutions that are responsible, like the FSB and the IMF, as already mentioned.

So what do you think is left for the G-20?  It’s just a group of information exchange in case of crisis, or what kind of future topics would you see to fit their agenda?  Thank you.

MR. PRICE:  It’s Dan here.  I don’t really that it’s turning back issues of regulation to the FSB or issues of currency and current account surplus to the IMF.  That was always how it was meant to work.  That is that the leaders gather to set an agenda and task work to be done by international bodies. 

So I don’t think we should conceive of it as dividing up subject matter horizontally among the standard-setters ad the G-20 leaders itself but rather I think this is more of a vertical relationship, if you will.

On your broader question of what should be on the G-20s agenda, I think that is a very real issue.  My concern about the G-20 is that it may, in future, suffer from mission creep.  It was elevated to a leaders meeting to deal with pressing questions of global financial regulatory reform and institutional reform.

It evolved in the London summit to deal with the broader macro-economic crisis and coordinated stimulus.  If it maintains its focus on those issues of, you know, kind of global economic recovery, reform and repair, I think it will remain vital.  If it broadens out its mandate to deal with a series of other issues such as climate or trade or development in the sense that the G-8 addresses development, I think there’s a real risk. 

There’s also a real risk that it becomes something like APAC, which is very much down in the weeds on the specifics of trade facilitation, identity cards, all of which is very important work but there’s a question about what value add there is by the leaders. 

MR. MONSARRAT:  Angel or Nicolas, do you want to take a crack at that or no?

MR. UBIDE:  Angel here.  I fully agree.  I fully agree.  I think they need to be very careful in not setting an agenda where they’re trying to solve all the possible future problems of the world, and they’re not being able to address the pressing ones when they come.

This is a group that is going to have some difficulties ahead in trying to find common ground, and so when their agendas are expansive, then you have that problem.  For example, I think a major success of the meeting last week, at the end of the day, was the progress in the insurance facilities with the IMF.  I mean, that was one of the key points that the Korean presidency said at the beginning of the year. 

They have managed to develop their PCL to make a clear assessment of why having better insurance facilities is necessary.  But it was one of the 10 or 15 points in the agenda and it just – it was basically overlooked even if it – it’s a major reinforcement of the policymaking, especially for emerging markets.

MR. VERON:  I agree.  I think there is a precedent here which is actually the G-20, and the G-20 was created in 1999, focused very heavily on financial regulation at the beginning – in the aftermath of the Asian crisis.  And then its agenda, of course in the form of the finance ministers and central bank governors, its agenda then drifted and became too broad.  And the G-20 was moribund when Dan and a few others resurrected it in late 2008 in the form of heads of state and government.  So the G-20 precedent is a cautionary tale for the G-20 as we know it now. 

MR. MONSARRAT:  There’s a certain elegance to that, I think.

I think we’ve got what is currently our final question teed up right now, so if anybody has any thoughts they’re holding onto, then go ahead and hit star 1 if you want to try to ask a question, but right now I’ve got Sinjin Choi (ph).

Q:  Good morning.  Could I follow through Mr. Price’s comments in U.S. perspective of QE2?  I was wondering what – ironically, a recent resurface of euro crisis has been working against the dollar weakening objective of QE2. 

Second question is with regard to Seoul – (inaudible) – summit, and financial services watching group was chaired by Peter Sond (ph) and – (inaudible) – charters, and – (inaudible) – was done by – (inaudible) – and Deutsche Bank.  I would be interested in a few speakers’ views on what outcome has been achieved during the summit.  Many thanks.

MR. PRICE:  Thank you.  I’m not sure I understood the first question. 

Q:  The question is, in principle, European stress tests on bank was supposed to have assured investors that European banks were not vulnerable to relative surprises.  Rather, it is widely believed in banking circles that crisis in sovereign debt could quickly bring contagions to operations of private euros in banks and ignite a few financial crisis on a scale far in excess of capability of euros in government.  From my perspective, is resurfaced euro crisis in November has been working against the dollar weakening of objective of QE2? 

MR. PRICE:  Oh, I see.  That is interesting.  I’m going to invite my more knowledgeable friend and colleague, Nicholas Véron, to comment on the general perception of the effectiveness and rigor of the European bank stress tests. 

I will say this in respect of both measures taken by European authorities and those taken by U.S. authorities:  What we have seen, unfortunately, in the last period is actions by governments, including independent governmental entities, that are very much focused on their own internal economies and are not sufficiently mindful of global impacts nor seemingly open to international cooperative steps.

And let me invite Nicholas to jump in on the stress tests.

MR. VERON:  Well, thank you, Dan.  I’ll invite Angel because he’s at least as competent as I am and, and actually more.  Just a word to say that the stress tests as Ms. Choi suggested, have not been a success.  They have not been credible enough to reach their aim of reinforcing, or actually reinstating trust in the European banking system. 

Some banks are in a better position than to rely now on the interbank market, but the system as a whole has not been repaired, and crucially, the stress tests have failed to trigger the necessary recapitalization and restructuring of those parts of the European banking system which are more fragile.  So generally speaking, it’s not been a success.

Now, I wouldn’t say it’s a G-20 issue at this stage, including with consideration of the recent volatility in the European sovereign bond market as much as a global crisis.  It’s a very serious issue for Europe.  I would see it as a local or regional still in its scope.  Even so, I am aware that the U.S. authorities are watching the developments with a lot of interest and concern, so I think it’s slightly still too limited a crisis to be a matter of core concern for the G-20, but, Angel, probably you have alternative thoughts.

MR. UBIDE:  Thank you.  I think what is important to see here is that we are missing two things.  One is crisis management, which is the aftermath of the shock of the last three years, together with an improvement of the long-run policymaking in the EU-RIA (ph). 

That’s essentially – it’s a parallel situation to Basel 3 where, on the one hand, we were still trying to recapitalize banks because they didn’t have enough capital and we were complaining about leveraging, and on the other hand we were drafting rules, talking about the necessary increases in capital to operate over the next couple of decades.

So that is what is happening in Europe right now.  The stress tests – so I’m going to disagree slightly here with Nicolas.  I think the stress tests were successful in showing that the banking sector in some critical countries, such as Spain, was much more sound and stable than markets here.  And so, that led into a period of recovering in threats and in activity after July. 

The current situation now, it’s – as I said, it’s part of this tension between crisis management and a long-term fixing of the policymaking.  It’s going to be resolved and we will continue.  And I will say that it’s so far – so far is going well because, as Nicolas mentioned, there hasn’t been much of a contagion into the rest of the world.  It seems to be a very different issue with respect to past May where the events in Europe really had an impact on the rest of the world.

MR. MONSARRAT:  Okay, thanks.  And for our final question we’ll actually go back to Reginald Dale from CSIS, who has another question.

Q:  Yes, thank you very much.  Really a follow up on the answer to my first question, in which two of the panelists compared the G-20 to the EU.  I think Nicholas Véron, in the context of French rhetoric, actually, or views that the G-20 was a kind of EU expanded to world level.

Well, I mean, that is obviously an extraordinary reach from where we are now, given that the EU provides prominent institutions pooled sovereignty and the whole complex interaction between the states, which is nothing remotely comparable to the G-20, but which also leads me to the question of democratic accountability for decisions taken at G-20 level, given that these are supposed to have global effect, but that some of the participants are hardly democracies and others are only acting with a sort of indirect mandate from their own electorates.

So it’s probably far too early to address that issue but I’m sure it’s one that’s going to occur in the future. 

MR. PRICE:  Reginald, Dan Price here.  I was one of the three speakers who did not compare it to the EU.  (Chuckles.)  And I wouldn’t compare it to the EU.  I take Nicolas’s point about subsidiarity in the sense that certainly the FSB, on its work on SIFIs, is properly focused on global SIFIs with an emphasis on interconnectedness, not just size.

But for the arc of progress of the G-20 itself as an institution, I do not see it evolving into global government.  I do not see it evolving to spawn a set of institutions that legislate at a global level, that enforces at a global level, or that adjudicates at a global level.

We are not nearly in a position, I think as the G-20 or as its constituent members, to be moving in that direction.  We have many, many steps to take on unfinished business on regulatory reform, macroeconomic governance, and economic recovery.

MR. UBIDE:  It’s Angel here, and I was one of the two who did mention the EU.  Let me tell you what I meant by mentioning the EU.  When the EU launched, for example, the discussion on the Stability and Growth Pact about 10 years ago, everybody criticized it because it was focused on rules that were arbitrary and hard deficit and debt target that were not based on any theoretical underpinning, so it was all a big waste of time.

I think many people missed a critical thing; that is by focusing on the monthly meetings of the ECOFIN (ph), on 3 percent deficit and 60 percent debt ratios, it made fiscal discipline an issue that no single government in Europe could escape.  It became the anchor of the discussion, the anchor of the public debate and the – (inaudible) – became the anchor of the discussion then even in the global economy.

That is what I mean by the G-20 becoming a little bit like the European Union.  The G-20 concept of a group, a core of shared values, be it the global rebalancing, be it the discipline in monetary policy, be it the support of low-income countries, you name it.  But one does become part of the conversation.  It’s something that nobody can really escape simply because the conversation happens all the time. 

That is in the sense that I’m comparing it to the European Union, and frankly I think the European Union in that respect is incredibly effective, because even if some of the rules may be too bureaucratic and the objective may not be shared by others, by making it part of the discussion, the process is incredibly effective.

MR. VERON:  I was the other speaker.  I actually said that the G-20 was not like the EU in response to the question about the French presidency.  But I don’t really disagree with what Angel just said; I just would say it’s an optimistic assessment because at this point I don’t think the Seoul summit displays the sort of agreement on principles that was the basis for the Stability and Growth Pact, even looking at it quite positively as Angel just did.

So we’re not yet there, in my view.  There are different views of the world at the G-20 and they’re not converging conceptually typically between China and the U.S. when we talk about these issues of imbalances.  So even in this limited sense, I’m not sure we’re seeing the sort of mechanisms that were at play in the yuan.  Of course, as Dan said, the EU has a legal infrastructure that the G-20 cannot have by design because the G-20, by design, is not and will never become a treaty-based organization. 

We do have treaty-based organizations in the world that have an enforcement capacity, or that bite in any other sense, and the IMF and the WTO, these two, their solution mechanisms are two examples, and I think the world needs more of that.  But it’s not the G-20; it’s the separate organizations for which the G-20 can provide impetus, can provide momentum, can grant legitimacy but which the G-20 cannot replace.

MR. MONSARRAT:  Okay, thanks, everyone.  I want to thank our panelists, who have given us a wealth of information and some really excellent insights that we can take away from the call, and that’s exactly the kind of thing we like to have here at the Atlantic Council where we can have some renowned experts weigh in on an important topic in a timely way.

And also, many thanks to Deutsche Bank for co-hosting this series with us.  It’s been enormously successful.  And we will post the transcript of this discussion in audio and in written form on our website as soon as it’s available.  And I hope everyone has a good week.  Thanks.