G-20 leaders to discuss economy, global rebalancing, capital

Canadian prime minister says he 'seriously doubts' G-8 will be replaced by G-20

TORONTO (MarketWatch) -- The U.S., Europe and other G-20 countries are expected to spend Saturday and Sunday sparring over the proper timing for withdrawing fiscal stimulus packages, the need to rebalance global growth and the necessity for banks to hold more capital as a cushion against future economic disasters.

There is hope among members that the countries can get closer to reaching a consensus by the time leaders have their next meeting in Seoul, Korea in November on how much capital banks around the world should hold to ensure they can survive future financial crises.

"There is much more consensus that the global system was under-capitalized," said Bank of Canada Governor Mark Carney in a radio interview. "It [new capital standards] will apply equally to Canadian banks as it does to American banks, European banks, Japanese banks and emerging-market banks."

Carney added that Toronto has been a useful summit already to help "push people" to make some decisions and restrict the range of discussion about what capital levels each country's institutions should have.

However, Simon Johnson, a Massachusetts Institute of Technology Sloan School of Management professor and a former International Monetary Fund economic counselor, believes that the capital requirements G-20 leaders will agree on fall short of what is necessary to protect against future economic crises.

"Most indications are that they will seek tier-one capital requirements in the range of 10%-12%, which is what Lehman had right before it failed," Johnson wrote recently. "How would that help?"

G8 won't fade away: Harper

The G-20 includes 19 major economies plus the European Union, and encompasses more than three-fourths of global output and two-thirds of the population. It includes the G-8 -- America, Canada, France, Germany, Italy, Japan, Russia and Britain - a group that met in Huntsville, Canada, on Friday. In addition to the G8 countries, Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Turkey, Saudi Arabia, South Africa and South Korea, are members of the G-20.

On Saturday, after the conclusion of the G-8 summit in Hunstville, Canadian Prime Minister Stephen Harper said the Group of 8 world leaders known as the G8 is an essential organization that will not disappear, responding to assertions that the organization will be replaced by the year-and-half old Group of 20 world leaders.

"I think there is greater understanding of the necessity of like-minded advanced countries who can exchange views in much less formal setting and who can quickly bring resources to bear on certain world problems," Harper said to reporters. "The G-20 has done an amazing job in year and half, of responding to the economic crisis. But there are limits to what we can discuss and what we can achieve in a group of 20, which leads to much less informal discussion and much less commonality of purpose."