Summit town? Ghost town is more like it.
The stock market opened for business at 9:30 on Friday morning, as it always does, but in Toronto's financial district there was nary a sign of a banker or trader. The courtyard fountain of Commerce Court, where employees of CIBC can normally be found venting or enjoying a cigarette break, was left to the pigeons. They even turned off the illuminated sign that carries the day's market action at the corner of King and Bay Streets, for what would have been the point? The only people to watch it would have been bored out-of-town cops.
The only suits we could spot in the entire downtown were behind the tinted glass of the vehicles ferrying around G20 delegations. Foremost on the minds of those men and women this weekend should be - well, to talk about the men and women in suits who were so conspicuously absent from the city's core. Any progress the G20 can make on fixing the world's banking system might prove to be more important (in the long run) than the summit's number one issue, the debate over how quickly to withdraw stimulus programs and cut government deficits.
The task of mopping up the red ink that has been gushing onto government balance sheets is an urgent one, obviously. Ten of 19 countries in the G20 - the 20th member is the European Union - already have gross government debt equal to at least half of their annual economic output. Most of these are developed countries such as Germany and the United States with aging demographics and slow economic growth. They don't have time to fuss around, and the resulting cuts and tax increases are going to affect millions of people in a real way. To take a handful of examples from this week's news: Britain raised its value-added tax (equivalent to GST or HST in Canada) to 20 per cent; the U.S. Senate opted not to pass a bill that would have extended benefits for more than a million unemployed Americans; French workers went on strike to protest a plan to raise the retirement age from 60 to 62; the city of Detroit plans to close 77 public parks to slash costs.
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We've entered a new era in government: pay more, get less. But that's also why it's a fantasy to think the G20 is going to accomplish very much on the fiscal question, in Toronto this weekend or at the Seoul summit later this year. To make people work longer or close their parks or shut down their hospitals - these are the hard, unpopular choices for elected leaders and their voters to decide. They're local matters, essentially. The G20 leaders can (and certainly will) have a spirited discussion about when and how to turn off the spending spigot. But the odds that Germany's Angela Merkel will have any real influence on the next budget of U.S. President Barack Obama are close to zero. Besides, the world doesn't need the G20 to enforce fiscal order on spendthrift governments: the bond market already does the job.
Bank reform is different. It's esoteric, but the issues are often global in nature. We saw this most clearly in the crisis of 2008. An investment bank on Wall Street failed, the contagion spread, and suddenly it became harder for a guy running a factory in China to arrange trade financing for a shipment to Europe.
How to fix? Forget a global bank tax to fund future bank bailouts, a bad idea that will eventually die a deserved death. The G20's focus should instead be on not only how to prevent financial collapses, but also how to manage them when they do occur, to avoid a Lehman repeat - seizure of the global credit markets. The problem, you see, is not bank failures, but disorderly bank failures.
Bank of Canada Governor Mark Carney has argued lately for a series of steps, such as forcing banks to have a lot more capital and come up with a plan for how they would unwind themselves if they became insolvent. "We have to create a system where individual financial institutions can fail," he said this week. This isn't sexy stuff. But Mr. Carney is right (as usual). The government is spending $1.24-billion to hold these summits, most of it on security and a massive police presence. The cops are keeping the summit protesters well away from the bank towers. Now it's up to G20 leaders to begin making decisions on what they'll do when it's the banks' creditors who are pounding on the doors.