Crisis management

At their meeting in Moscow on the weekend, finance ministers of the world's 20 leading industrialized nations set out to put out several fires at once, or at least improve protection mechanisms with regard to the global financial order. Among other things, they wanted to reach an agreement on how to keep shadow banking systems at bay and avoid a currency war.

In their closing statement, the finance ministers sharply condemned the attempts by some nations to devalue their currencies. That condemnation was perhaps clearer in words than could have been expected, but concrete measures were not agreed on, a fact that did not go down well with many financial players. Baader Bank's Stefan Scharfetter told DW at the Frankfurt Stock Exchange  that he was not pleased with the results.

"What was decided there deserves to be called a cheat package," he said. Jörg Krämer, chief economist  at Commerzbank, agreed, arguing that declarations of intent were OK as such but they would be to no avail if Japan and other nations were out to achieve the opposite, "notably a policy of ensuring a weak currency with short-term gains and advantages in mind at the cost of others."

Recent steps taken by the central bank in Tokyo, in particular, had nurtured fears in recent weeks that a currency war might soon break out. Scharfetter went as far as to say that the Japanese monetary policy had to be seen as a war-like attack on other currencies.

Not speaking with one voice

Jürgen Matthes, an expert on international economic systems with the Cologne Institute for Economic Research (IW), suggests looking at things in a more differentiated way. He says some central banks have indeed been pursuing an active currency exchange rate policy so as not to fall behind, a notable example being Switzerland which has supported its own currency to keep it in a stable balance with the euro.

But Japan insists it's pursuing its policy out of different considerations, saying that the central bank prints fresh money only with a view to stem deflation in its own country. In other words, the argument is that fresh money pumped into the market is not primarily meant to devalue the yen, but to crank up the economy as a domestic political measure.

Budget consolidation - yes, but …

Another area in which the G20 was unable to make big strides was public debt reduction and with it, the implementation of savings targets set by the Toronto summit back in 2010. At that gathering all group members except Japan pledged to halve their debt loads by 2013. But most of the signatories to the Toronto Declaration are still way off that target.

Matthes cites ideological reasons for the lack of progress. "Germany believes that the economy recovers faster through a persistent budget consolidation drive," he argued. "And experts don't put that much emphasis on the negative effects of such a policy in the wake of accompanying tax hikes or curtailed pubic spending."

But in other countries, particularly the US, there's a different view, Matthes claims. Instead of saving, spending is encouraged to fuel consumption and get on top of the crisis via continued growth.

Control of shadow banking sector delayed

The regulation of financial markets will almost certainly be a required measure in the fight against international financial crises. And G20 finance ministers had originally set out to take a closer look at the shadow banking sector.

"If we are to further regulate the banks, which is absolutely essential, then of course we have to prevent businesses from moving away and a future crisis in the shadow banking sector," said Matthes.

But on that account there were also no tangible results in Moscow, with the issue simply postponed until the G20 summit in St. Petersburg in September.

Matthes remains skeptical. "I'm not sure whether important decisions will be reached in St. Petersburg, but we'll see tangible results in the meeting after next, at the latest."

Toothless tiger?

Closing taxation loopholes was yet another item on the G20's agenda. A number of transnational companies such as Google, Amazon and Starbucks have had a habit of transferring their profits across borders in order to pay a minimum of taxes. But thanks to a joint initiative by Germany, France and Britain, that issue is now being looked into by a panel of experts called upon to work out suitable countermeasures.

For Matthes, this move is a sign of hope. "The fact that Britain is one of the protagonists in this is a good sign," he said.

Budget consolidation, shadow banking and taxation loopholes – the Moscow meeting debated all of those issues, but it lacked the clout to reach agreements. Unlike Scharfetter, Matthes doesn't want to speak of a "cheat package." But he says the G20's fundamental problem is that it can only hammer out recommendations and ratchet up the psychological pressure, but it lacks the power to impose anything or punish anyone for failing to comply. He adds that currency policies illustrate that very well.

"In order to avoid global devaluation races one ought to have a disciplining instrument, and whoever opposes it gets punished," he said.