JEFFREY BROWN: One key outcome of the summit is that the Group of 20 will replace the G-8 as the permanent council on global economic cooperation, reflecting the larger role of countries like China, India and Brazil in the world economy.
The main focus of what’s intended as new, broader economic cooperation was how to readjust global imbalances, how to prevent another financial crisis.
To that end, leaders agreed late today on proposals designed to revamp the global financial system, among them: issuing stronger rules on how much capital banks must hold to cushion against future losses to be rolled out by 2012; linking executive pay to long-term value creation, not excessive risk-taking — no bonus caps, however; reducing global imbalances; and creating a so-called peer review system under which countries, with assistance from the International Monetary Fund, would assess each others’ policies on issues like national savings and spending.
Late this afternoon, President Obama held a press conference.
U.S. PRESIDENT BARACK OBAMA: And here in Pittsburgh, we’ve taken several significant steps forward to secure our recovery in transition to strong, sustainable and balanced economic growth.
We brought the global economy back from the brink. We laid the groundwork today for long-term prosperity, as well.
Today, we took bold and concerted action to secure that prosperity and to forge a new framework for strong, sustainable and balanced growth.
JEFFREY BROWN: Next year, summits will take place in Canada and Korea.
Our economics correspondent, Paul Solman, has been in Pittsburgh this week. I talked with him a short time ago.
Inclusion of emerging economies
PAUL SOLMAN: I was really amazed. Jeffrey Sachs, who's been on our show since 1986, I interviewed him today right about here, and he said he thought it was a historic occasion. You know, he's always like the Jiminy Cricket of the world economy, always saying what should be that you're not doing right.
And he said historic, historic occasion because of the inclusion of the emerging economies -- the Brazils, the Chinas, the Indias -- after so many years when it was an elite club, going from, I don't know, less than a billion people represented, something like that at the G-8, to something like 4 billion-plus in the G-20, which is what this, after all, is.
JEFFREY BROWN: Well, you know, we saw your interview yesterday with President Lula da Silva of Brazil...
PAUL SOLMAN: Right.
JEFFREY BROWN: ... saying much the same, that the importance of moving to a G-20. So does it seem to you that's what people are picking up most on out of this?
PAUL SOLMAN: Certainly that was the thing that struck me most. It struck me in the interview with Lula, a kind of a -- a sense almost of vindication, of, hey, I've -- you finally realize that it's important that countries like mine have arrived.
Last night, I talked to a Chinese -- at a Chinese press conference, I asked some questions. It was a different sense in talking to the Chinese than there had been just a few years ago, more authority, more of a sense of, hey, we belong, we've got authoritative things to say. And then Sachs himself, who said he's just never seen a meeting like this, from the point of view of people from those countries talking in empowered ways.
Solving global economic imbalances
JEFFREY BROWN: Now, they also talked in this agreement about pledging to solve imbalances in the global economy. First, what does that mean? And what kind of reaction were you getting to that?
PAUL SOLMAN: Basically, it means China saves too much, America spends too much, and so do other developed economies. So the idea is, how do you change that balance? That's what I asked the Chinese about last night.
And what they said was, look, we're completely aware of this. We'd like to fix it. It is going to take a long time. We're spending a lot more, the Chinese said. We've got the biggest stimulus package in the world. They didn't say that, but I say that, on a per capita basis. And so we're really trying to change, but it's a structural problem -- I'm quoting one of the top Chinese officials last night -- and it's going to take a long time to fix.
So what the group here is pledging is, we're going to look at this, we're going to monitor it, we're going to take account of the imbalances. And through the IMF, which is being mentioned here more prominently than it has been in the past, through the IMF, we're going to try to do something about it.
But, you know, it's easy to say we're going to spend less in America or, you know, spend more in China and quite another thing to actually have it happen.
Emphasis on future stimulus
JEFFREY BROWN: Let me ask you one more brief thing before I let you go.
PAUL SOLMAN: Yes, sure.
JEFFREY BROWN: There are, you know, still debates here about whether we need more stimulus. In terms of where we are now, what was the sense of how much more -- whether the international system needs to keep stimulating the economy and growth?
PAUL SOLMAN: Yes, I'm glad you added that, because I'd forgotten. One of the things that seems to be coming out of the communiqué -- I'm talking to you now just as it's coming out -- but it seems to be that there's going to be a real emphasis on future stimulus.
Now, I don't know what emphasis means, but one of -- the key phrase, the mantra is, "It worked," meaning the stimulus, the coordinated effort of the world economy that IMF chief Strauss-Kahn was bragging about or so impressed by on the show when we talked to him just about a week ago, that, they vow, will continue, or at least they will not stop it right away.
Now, it's tough to do that, given the constituencies back home, but that seems to be part of what they are saying here, very specifically, yes, we're going to -- we're not going to stop. I don't know about going to continue so much as we're not going to stop, we're not going to let the world recovery slow down or come to a halt.
JEFFREY BROWN: All right, Paul Solman in Pittsburgh for us this week, thanks a lot, Paul.
PAUL SOLMAN: Sure, Jeff.