A Candid Love Letter From G8 To G20

There doesn’t seem to be any disagreement between the leaders of the eight richest countries in the world and the almost-richest-countries, the Group of Twenty. On the contrary, they are absolutely on the same page when it comes to what to be done about the financial situation. At least; that’s the impression you get when reading the introductory remarks by President of the EU Commission, José Manuel Barroso, to the G20 representatives meeting in Toronto right now.

“We had an excellent G8 meeting – very informal, with candid discussions.”

José Manuel Barroso

“This Summit proved that global governance is working. There was a strong willingness to understand each other and work together. I presented the situation of the European economy. There was a lot of mutual understanding on how to bolster fragile economic growth, and recognition that the EU has reacted with appropriate and bold action,” president Barroso says in his opening statement.

“I highlighted the main strands of Europe’s three-fold action,” Mr. Barroso said according to a transcript just released by the EU Commission.

“Measures taken to guarantee the financial stability of the EU and the euro area  – stabilisation mechanism and economic governance.  All agreed Europe had taken decisive action on this. I stressed the contribution Europe was making through fiscal stimulus in 2008 – 2010, and the need to return to fiscal consolidation (as of 2011), so to maintain confidence and growth. Nobody questioned this at all.”

“I explained the decisions we had taken on the stability of our banking system through disclosure of banks’ positions (stress tests). This was welcomed by all.”

“We now move on to the G20-Summit. I expect same spirit to continue. It is the first time we meet as premier forum for our international economic cooperation,” Barroso stated, in an attempt to bolster the G20 meeting’s authority.

“The EU comes united to the G20 leaders meeting. Herman Van Rompuy and I will work with our partners on three priorities in particular.”

The three priorities of Barroso and Van Rompuy are as follows:

1) We will strive for a coordinated approach at global level that combines growthfriendly fiscal consolidation and following through on fiscal stimulus. Discussions in the G8 have shown that it is possible to reconcile the conceptual differences. We are hopeful that it will be possible also within the G20 to agree on coordinated gradual and differentiated exit strategies. We expect the G20 to agree on concrete targets for deficit reduction and the stabilisation and reduction of debt. We need these targets to be credible and we want them to be minimum targets.

2) We need to keep the momentum in our action for financial repair and reform. We must stick to the agreed timeframe for reform, or accelerate it. We must remind financial services of what they actually are: services for the benefit of our economies. We must make the financial sector more resilient to crises and risk, and avoid that tax payers have to bail out banks in the future. Financial sector must make a fair and substantial contribution. Europe will continue its efforts to convince partners to agree on ways to make the financial sector participate in the costs of repair, resolution and prevention. In Europe we have agreed to set up a bank resolution framework. And we agreed to introduce systems of levies and taxes on financial institutions to ensure a fair burden sharing and to give incentives to contain systemic risks. We hope to see similar approaches from our partners. And we see already positive developments from the US.

3) Thirdly, we need to strengthen the quality of bank capital and liquidity to face future difficulties. We welcome and support the progress made by the Basel committee. We are confident that in the end the amount of capital will be significantly higher and the quality of capital will be significantly improved. We urge the G20 to reach agreement at the time of the Seoul summit on the new capital framework.

Here’s a copy of the full letter from G8 to G20, just released.

For more information about the EU strategy, here’s a copy of  Barroso and Van Rompuy EU goals at the G20 summit in Toronto.


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