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Should such national bank-rescue schemes be subject to international control, and if so, by whom? At one limit, Angela Merkel, the German Chancellor, has advocated a sort of United Nations Economic Council, much like the Security Council. The idea has as yet won few backers — and the long, unsuccessful attempt to reform the membership of the Security Council itself would suggest it will get nowhere. Brown and others have urged reform and recapitalization of the Bretton Woods international financial institutions (IFIs), with a much greater role handed to the International Monetary Fund, to which Japan, quietly re-establishing the credibility in international financial debates it had in the 1980s, has pledged $100 billion. But reform of the IFIs, especially to give more weight to the views of developing economies (a key theme of Davos, with the chorus led by South Africa's finance minister Trevor Manuel) has been on the international agenda for the better part of two decades, to little evident effect. And then there is this week's issue: should the pay of bankers whose firms are being bailed out be limited, as the Obama Administration in the U.S. has said it plans to do?
Nor is there agreement on which private-sector financial institutions should be subject to international regulation, or how that might be done. The G-20 is supposed to have agreed that multinational banks will be subject to oversight by a "college of supervisors," though how this will work is far from clear. And what about hedge funds? Well before the crisis erupted, France and especially Germany had argued that they too should be subject to international regulation. That was rejected by the U.S. and Britain in 2007. Now Merkel has said that the hedge-fund question is back on the agenda.
A Return to Protectionism?
But the fundamental problem facing the G-20 meeting is not, actually, about its agenda. It is that world leaders have divided loyalties. On the one hand, they know that international coordination is vital if the global economy is to be gotten back on track. On the other hand, they are politically responsible to their domestic constituencies, not international ones. And in tough times, those constituencies do not like their politicians appearing to favor foreigners.
A recurrent theme at Davos was the dangers of a rise in protectionism as countries resort to beggar-thy-neighbor policies to shore up their economies. One U.S. provision caused particular ire: a "Buy American" stipulation in the House of Representatives version of President Barack Obama's stimulus package that would require steel bought through the spending program to be made in the U.S. Countries such as Canada, as well as the European Union, have loudly protested. (Obama subsequently said he would alter the language in the legislation because he didn't want "to start sending a message that somehow we're just looking after ourselves and are not concerned with world trade.") Merkel and others — not all of them with large domestic automobile industries to protect, as she has — also poured scorn on the U.S. plan to bail out Detroit. With an eye on the disastrous U.S. Smoot-Hawley tariff increases that followed the Wall Street crash of 1929, Brazil's Foreign Minister, Celso Amorim, warned that he was seeing "some signs of measures that could return us to the ideology of economic nationalism that would take us back to the '30s."