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Wednesday, September 23, 2009

A handful of issues are likely to dominate the Group of 20 summit in Pittsburgh, with disagreements brewing between key players.

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FINANCIAL REGULATORY REFORM

United States and E.U.

Focus on Different Issues

While there is a broad consensus that regulation of the global financial system needs strengthening, the continental Europeans and the United States are emphasizing different elements of reform. The Europeans have stressed restricting banker's pay as the best way to get rid of perverse incentives that they think encouraged irresponsible risk taking. The United States, meanwhile, would seek to require banks to increase the quality and quantity of the capital they hold on reserve to cover potential losses so that taxpayers are less likely to be on the hook for their mistakes.

REFORM OF THE IMF AND THE WORLD BANK

China, India and Brazil

Emphasize Emerging Economies

The United States and emerging economies such as China, India and Brazil want to change the structure of the International Monetary Fund and the World Bank to better reflect the increasing importance that the latter play in the global economy. But any change would likely be at the expense of smaller European countries, which are overrepresented in both bodies and as a result, those nations have been less enthusiastic about such changes.

REBALANCING THE GLOBAL ECONOMY

U.S.-China Trade

Is a Critical Issue

The United States is pushing for an agreement to promote what officials are calling balanced and sustainable growth. It is part of an effort to persuade export-dependent countries and China in particular to rely less on the U.S. consumer for growth and more on domestic consumption. Some economists think the U.S. trade imbalance with China contributed to the financial meltdown by allowing China to accumulate dollars and boost investments that helped fuel the housing and stock price bubbles. The Chinese have acknowledged the need to rely less on exports but are likely to chafe at anything that suggests they were to blame for the crisis.


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