Thanks, Barack!

The G-20 summit was successful – but credit for that must go to the Americans, not the Germans. The Germans were concentrating on the wrong subjects.

Something is happening in Pittsburgh. The world financial summit is not quite over yet, but early results are starting to come in. Equity rules for financial institutions have been tightened and dealings with derivatives will be more closely watched. Large banks will face the most scrutiny. Angela Merkel and Peer Steinbrück can also claim a small symbolic victory on the issue of executive bonuses, since executives will also be subject to new regulations – if only on the national level. That, however, means little because the fight over bankers’ bonuses was always little more than populist posturing; it had very little to do with the crisis itself.

Cleanup operations have yet to begin. Governments put their trust more and more into the beneficial mechanisms of market forces over the past thirty years. They loosened exchange rates, liberalized capital flow and permitted the banks to do business more and more with outside money and less equity. Those were the central mistakes that caused the crisis and which now must be corrected.

The international community still does not dare tamper with exchange rates and the flow of capital but they intend to reform rules concerning equity reserves. In the future, financial institutions will have to have larger reserves, making it more difficult to speculate and building buffers against worse times. That alone will cause manager bonuses to shrink. The G20 also intends to oversee global capital movements more closely. Nothing good can result when half the world saves only to loan it to the other half, to nations that go increasingly into debt. But that’s what is actually taking place right now with American excess debt and high savings rates in Germany, Japan or China being two sides of the same coin.

The International Monetary Fund (IMF) intends to ensure that such imbalances do not occur in the future. While there will be no sanctions or binding agreements, at least the subject has been placed on the global political agenda. In view of the diverse interests of the nations involved, that accomplishment should not be overlooked.

It was thanks to the Americans, by the way, that the subject of global imbalances ever came up at the summit. That deserves praise because it was one of the main causes of the global crisis. When Chancellor Merkel describes imbalances as a side issue, she only displays how little she understands the subject. The German counter proposal to the American suggestions, a charter for sustainable growth, met with justifiable international criticism. It focused exclusively on high governmental debt and ignored enormous personal debt.

One of the myths propagated by the German government holds that Americans and Britons only retard international financial negotiations while Germany expedites them. In actuality, many common sense suggestions come from the Anglo-Saxon world while the Grand Coalition that is German politics continued to depend on populist issues such as controlling executive bonuses.

Furthermore, nothing is stopping the German government from getting its own house in order. When will the redundant, public funds-devouring state banks finally be done away with? When will bankers and others who profited from the excesses of earlier years finally be forced to pay for their part in the crisis via a special tax? These are things the government is capable of doing unilaterally. If speculation by banks decreases national wealth, then people should celebrate the fact that Frankfurt’s financial markets are becoming less relevant rather than trying to claim regulation will only reduce the nation’s competitiveness. Talking about the supposedly anti-regulatory global environment is no excuse for inaction on the national front.