Wolfgang Reuter

Berlusconi now spoke to him directly: “I would like to extend my congratulations to Barack Obama,” he said, adding that the economic crisis had begun in the U.S. “Now he has to address it,” he said and looked towards Obama. “We wish him all the best for the citizens of the U.S. and the entire world.”

Then everyone turned to the American president. The 18 men and two women were sitting in the drab ExCel Conference Centre, where red bouquets that resembled flower boxes had been placed on the tables. The world’s top politicians were waiting for a closing statement.

“It is gratifying to see that good work has been done here,” Obama began. “Ten, 20, 30 years ago, it was not a matter of course that countries which were traditionally enemies solved problems together. After the Great Depression, a similar group did not convene until 1944. Also in 1982, following the Mexico Crisis, it took seven years before the problems were tackled together.” Now he spoke with urgency: “It is important that we do not sell short the results of this summit. The press would like us to have conflicts. Instead we have attained great achievements. And it is important that we exude confidence.”

He then lowered his voice: “It is true, as my Italian friend has said, that the crisis began in the U.S. I take responsibility, even if I wasn’t even president at the time.” And he underscored how important it is for him “that we now genuinely make progress. Thank you.” Applause.

The others couldn’t believe their ears. Was that really a confession of guilt from the U.S.? Was it a translation error, or at least an inaccuracy? Afterward, this sentence fueled long discussions among the members of the German delegation. German Chancellor Angela Merkel was so impressed by Obama’s statement that she rushed to tell her finance minister, Peer Steinbrück. Japanese Prime Minister Taro Aso reacted immediately: The proposal to hold the next summit not in Japan, but rather in the U.S., is something that he no longer rejects, he says, “now that the U.S. has shouldered responsibility.”

Obama’s confession may go down in world history as one of the greatest statements ever made. The U.S. president is accepting responsibility for the beginning of one of the worst economic crises of the last century. By doing so, he has admitted that one of the excesses of the American way of life — the insatiable craving for huge profits — has brought the world to the brink of disaster. The others may have played their part, but the origins lie in the U.S. The fact that Obama has now admitted this sends a strong signal of hope to the world, perhaps the strongest to emerge from the G-20 summit in London last Wednesday and Thursday. Such an admission could begin to pave the way toward rectifying the situation.

A number of resolutions were also made in London: Pledges to introduce greater regulation of financial markets, ban tax havens and grant loans for poorer countries. It still won’t be enough to save the world yet. The summit will not help liberate the world’s banks from the burden of billions of dollars’ worth of toxic derivatives. It won’t trigger an economic upswing, and the expectation that it can successfully rein in global financial markets is little more than wishful thinking.

But the conference does signal an important departure from Anglo-Saxon-style turbo capitalism, with its unregulated credit markets, promises of double-digit returns and astronomical bonus payments for managers. It could mark the beginning of more moderate business practices, under the watchful eye of countries with more regulatory muscle.

In the hours immediately preceding the conference, it didn’t look as if the representatives of the world’s leading economic powers would be able to achieve such a result. The host, British Prime Minister Gordon Brown, didn’t think much of firm controls of financial markets, and preferred to boost the economy with new stimulus packages. Obama appeared to share his views.

Over the previous week, though, a united front had gradually emerged on continental Europe. This alliance had existed earlier, but had started to crumble. Germany and France seemed to have drifted apart under Merkel and French President Nicolas Sarkozy.

But after a flurry of phone calls and a number of meetings, they found a joint position on the financial crisis: regulation of the financial markets and no new stimulus packages. It looked like the stage was set for a battle between the continental Europeans and the Anglo-Saxons.

Shortly after Merkel and Sarkozy landed in England on Wednesday, they held a joint press conference. The German chancellor said she was “slightly concerned” that participants at the conference might too easily opt to sweep things under the rug and “not seize the evil by the roots.”

Sarkozy then said that he and Merkel spoke with one voice. He said that he would not leave here “without new regulations.” The French president said that one was either in favor of putting an end to how things had been done or continuing as before. He said that nobody had to lecture Europe on how to forge compromises, but a compromise had to be shared by all the regions of the world, especially since the crisis had clearly not erupted in Europe, “n’est-ce pas?”

All of this sounded fairly confrontational, despite the frequent use of the word “compromise.”

When the world’s most powerful leaders met on Thursday afternoon at the ExCel Conference Centre for the plenary session that concluded the summit, it looked like a deadlock situation. In the middle of the previous night, the preparations of the sherpas — as the negotiators are called — for the final communiqué had come to a standstill. At some point in time, the aides had thrown their hands up in despair. It seemed to them that the differences between the Anglo-Saxon and German-French worlds were simply too great.

As a result, their bosses found no polished texts on the table, only a draft with many gaps and question marks. At an international summit, this counts as a worst-case scenario.

Fighting over each word

Now the full-scale wrangling began. They argued over sentences, phrases and individual words, but in the end these words would be decisive, would dictate a transformation or a continuation of business as usual. Victory or defeat. Triumph or humiliation.

The world was expecting from the heads of state and government an answer to the question of what will happen now that global capitalism has crashed. But there were other expectations as well — national expectations. Everyone here at the table had a reputation to lose on their home turf. In the run-up to this event, they had all told their constituents what they intended to push through here at this table. They knew that people back home were watching carefully to see how they would perform.

Shortly before noon, Merkel had finished pleading her case for regulation of the financial markets. Her red jacket radiated among all the dark suits like a buoy in the sea.

Now it was a question of what positions the other countries would take — a question of determining the top issues at the summit. Obama and Brown had repeatedly said that regulation and tax havens were of secondary importance. Merkel and Sarkozy wanted to give them priority. The previous evening, Merkel’s advisors had estimated that she had a 50-50 chance of pushing through her agenda.

So it was important now to hear from the Chinese leader, the representative of the superpower of the future. Hu Jintao began by saying that he wanted to make some remarks concerning strengthening financial oversight. He said it was “very appropriate to strengthen financial regulation.” There must be external supervision, no self-regulation. He added that an impenetrable barrier should be put up between the conventional banking world and investment banks. “Shadow banks” and hedge funds should be abolished. And he called for an early warning system. Those were clear words. The German chancellor nodded with satisfaction. China had come through.

But this was followed by a bitter setback for the supporters of regulation. Japan’s Prime Minister Aso said that it would be better “not to rush forward with regulations and supervisory plans.” Japan had countered China, as has often been the case in history. The contest remained undecided.

At 12:10 p.m., Brown gave “Nicolas” the floor. Sarkozy at first adopted a decidedly polite tone. “The communiqué is truly outstanding,” said the French president. “We have, and you have, Gordon, done outstanding work. But there remains a problem that we have to face up to. Is there a list of tax havens: yes or no?”

Over the next few hours, the dispute over the list became a symbol for just how serious the world’s most powerful leaders are about creating a world with new, fair rules. It served as a measure of their willingness to initiate reforms.

This list already exists. At least, the OECD has all the data required to publish it at short notice. But until now it has met with political resistance. The list names those countries that get rich at the expense of other countries by doing business with dirty money from tax evaders. Now the question is whether — with the approval of the G-20 — the list should be made public as a modern form of putting someone in the stocks.

Sarkozy needed this list. He had promised the French that he would get it in London, that it was non-negotiable, and that he would leave if his demand wasn’t met.

Of course he was fighting for more — for a new economic model, for more regulation and restrictions. This also included a new, more stringent system of bank supervision, a watertight monitoring of all financial products — but also the fight against tax havens.

Brown had not mentioned the list in his draft version of the communiqué. “We all know that there are tax havens,” the Frenchman informed his British counterpart. And he said that every one of them threatened the global financial system.

Sarkozy worked himself into a fury. Two-thirds of all financial risks, he said, lie dormant in the tax havens — some $1.8 trillion is hidden in the Cayman Islands alone. “These are the countries where there is crime and speculation.” Nobody at this table abides speculation, he said. Why then “shouldn’t we publish the list today? The list exists, of course. That would be an honest approach.”

Then the Netherlands joined sides with those who favor regulation. “I totally agree with what Angela Merkel has said and I would like to support her,” said Prime Minister Jan Peter Balkenende.

This was followed by yet another setback for Merkel and Sarkozy, a blow that came from their own ranks. Czech Prime Minister Mirek Topolánek, who currently holds the rotating presidency of the EU, addressed the conference. He spoke at length against issuing a list. Many countries had announced “that they would now respect the rules,” so such an instrument was no longer required, he said. The German delegation suspects that Luxembourg Prime Minister Jean-Claude Juncker was behind this intervention. After all, his country has a rather murky reputation when it comes to tax matters.

Then Brazil’s President Luiz Inácio Lula da Silva made a small but nasty comment. He presented concrete proposals for who exactly should stand on the list of evil, tax-dodging countries. “I think that Costa Rica, Guatemala, Malaysia, the Philippines and Uruguay should also be condemned,” he said.

Suddenly, the conference resembled a world court. Countries whose names were quite openly mentioned sat in the dock. Prosecutors presented arguments, and lawyers rushed to the defense. And Gordon Brown presided over this world court like a judge.

With a sonorous voice, he tried to keep a tight rein on the debate. At 12:15 p.m., Brown adjourned the first part of the plenary session and invited everyone to eat lunch. The heads of state and government sat at four long tables that were arranged in a square. Now the constellations were smaller and more intimate than in the larger format of the plenary session — now those whose opinion really makes a difference found themselves sitting together over liver paté and vegetable strudel.

At the lunch table, World Bank President Robert Zoellick was asked to give an overview of the crisis. “If I say too much, then tell me and I’ll stop,” said the American, and then he began his dramatic analysis.

“For the first time since 1945, the global economy has shrunk. We expect it to contract by 1.5 percent,” he said. “Infant mortality will also rise. That’s 200,000 babies who will have to die. The situation in developing countries is particularly dire. Today, there have already been massive job losses in Botswana and Sri Lanka. Even growth in China is critical.”

Zoellick noted that the situation continues to be uncertain and that “2009 will be a dangerous year.”

“I can’t sign this”

Alarmed by Zoellick’s comments, the G-20 leaders once again turned their attention to the wording of the final communiqué. Chinese President Hu expressed concern that they might be promising too much. The draft text contained the assertion that the projected $5 trillion in stimulus programs would lead to the creation of 19 million jobs.

“That seems to me to be too optimistic,” Hu said. “Could it be the case that these figures were arrived at simply by assuming a certain ratio of job creation to investment volume?”

Hu’s question went unanswered. Merkel had a question of her own about another figure. “The 4 percent by which economic output is supposed to rise, is that 4 percent of global GDP or 4 percent of growth? We should specify exactly what is meant or we could end up saying something that turns out to be baloney,” she said. Her choice of words was a reminder that world leaders are no less given to plain talking than ordinary citizens in their respective countries.

Brown, who in his function as summit chairman was responsible for formulating the draft text, tried to attribute blame for the lack of clarity to the sources in question, saying the 4 percent was a growth forecast and that the reference to 19 million jobs had come from the International Monetary Fund and wasn’t a calculation his people had made.

“In that case, it has no business being in your text,” someone called out.

“We do occasionally rely on information from other organizations,” Brown replied somewhat defensively.

Indian Prime Minister Manmohan Singh also had doubts about the promise of 19 million new jobs. “If I go home with this figure, people are going to be asking me: ‘How many of these jobs have you created in India?’ And they will want to hold me accountable for the fact that the number of new jobs available in India is continuing to decline.”

This was followed by further comments on the 19 million job figure by the Australian prime minister, the Russian president and the head of the IMF. In a display of Asian wisdom, South Korean President Lee Myung Bak attempted to defuse the debate by saying: “If the economy has become so unpredictable, then economic statistics are likely to be less reliable as well.” He suggested they write 19 million “according to the IMF.” “No forecasts are correct anyway. Economics isn’t like mathematics. One and one isn’t always two. In economics it can sometimes be three or four. One and one can also turn out to be one.”

This kind of talk was starting to make some of those listening to it feel a little dizzy. The exchanges between world leaders were redolent of the kinds of meetings that are held in thousands of companies around the world every day where, as here, people are prone to get hung up on minor details all too easily.

Now, it seemed, only the authority of a superpower would be able to end the debate that continued to rage in reference to the 19 million jobs. Before the meeting Barack Obama had said that he was there to listen, not to lecture. He had kept his word up to that point, but apparently felt things were getting out of hand: “I think we shouldn’t waste too much time on this. If we want to use this number we should add ‘according to economic models’ or name the source.”

Perhaps one should hold off for a while yet on writing the U.S. off as a superpower.

At 2:27 p.m. Gordon Brown announced: “The final version is here.” By that he meant the version of the communiqué in which all the desired changes had been made, at least those that had been discussed up to that point. The delegations then withdrew to consult further before beginning the final round.

Brown opened the meeting by saying that with a little bit of goodwill they could get the job done fairly quickly and asked everyone to be fair and not to make any major changes to the text.

He then started going through the text of the communiqué, reviewing each paragraph where changes had been made.

Brown was just about to call out paragraph 26 when he was interrupted by Argentinean President Cristina Kirchner. “I need to say something here.” She wanted to talk about attempts to grant poorer countries more IMF support through the sale of gold reserves.

Kirchner was upset by last-minute changes that had been made in the text. “The delegations worked on this text for four months and then five minutes ago we get an entirely different text. Making changes in this manner, without discussing things beforehand, isn’t very businesslike. I can’t sign this unless a formal reservation is written into the text.”

Brown was apologetic: “If I had known there was going to be a change in meaning, I would have let the old formulation stand.”

That was the starting bell for a renewed round of haggling. One after the other, the leaders of the world’s 20 most powerful countries presented their pet interests in an attempt to gain a further advantage of some kind for their countries. Italian Prime Minister Silvio Berlusconi was at the head of the line. As is so often the case, his motivation was pure vanity. “In paragraph 24 we have not taken advantage of the opportunity to mention the summit being held in July on La Maddalena,” he complained. Berlusconi was referring to the G-8 summit, which his country will be hosting this summer.

Another person at the table, also known for his vanity, felt he had waited long enough. There was still no reference in the communiqué to Nicolas Sarkozy’s list of tax havens and he took this as an affront. “What’s with the tax havens?” he asked with an element of irritation in his voice. “I won’t be able to agree to this thing if there’s no list. I won’t be able to sign it. I won’t assume political responsibility for it. If there’s no list these are just empty words. It would be a disaster.”

Brown tried to calm him down again, saying that the OECD Secretary-General would be publishing a list that afternoon and adding that he had personally made sure of that just a little while ago.

“But our communiqué needs to make reference to this list,” Sarkozy objected. He was gesticulating wildly and having difficulty staying seated. “A clear connection has to be made between them. Otherwise this is all meaningless.”

Angela Merkel wanted to say something, but was interrupted by President Kirchner of Argentina. The latter wanted to resume talking about her favorite issue, gold reserves. “Cristina, please don’t get angry about this,” Merkel urged. “Our formulation is a success for the poor countries.”

Once again Brown tried to mediate and once again he failed. Kirchner refused to stop. Finally, the British prime minister tried to take command of the situation by exerting his authority: “I’m the chairman, Cristina.”

This failed to make any impression at all on Kirchner. She kept on talking. “What Merkel is saying makes it sound like I don’t want to help the African countries. If that’s the way it came across I apologize. What I’m getting at here is the way things are being done. Changes are being made at the last minute. We can’t operate this way. And by the way,” she said, looking at Merkel, “I’m not angry at anyone.”

Before the dispute between the two women could escalate further, Sarkozy started up again about his list: “I can’t tolerate the fact that tax havens are riding roughshod over our principles. There can’t be an agreement here unless this matter is addressed. I don’t want to be unpleasant about this, but it is clear that we are at a historical crossroads here. This is a time for a decision. We need to say who is honest and who is dishonest.”

Brown again tried to calm him down by saying, “Nicolas, keep in mind what it was that we agreed on here. The era of banking secrecy is over. I’ll see to it that this list is published before you hold your press conference.”

“But then what would be so bad about writing that into our communiqué?” Sarkozy asked. “If there are ulterior motives of some kind here then we should say so openly.”

“I think there’s a misunderstanding here,” Brown said. “It’s not us, it’s the OECD who’s publishing the list.”

Sarkozy hung on doggedly: “Then just one short sentence: ‘The G-20 welcome the fact that the OECD is publishing the list.’”

“Couldn’t the solution be that we write into the annex that we welcome the fact that they published a list,” Merkel suggested. “That way it wouldn’t be in the main document, but it would be included somewhere.”

Berlusconi chimed in at this point: “I’m with Angela and Nicolas on this. It won’t look good if we don’t make reference to the list. The media in my country will be hugely impressed if we do.”

Sarkozy finally leaned back and relaxed. He had received the additional backing he needed and managed to get what he wanted. Brown proposed that they agree on the following formulation: “We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information.” After that there were no further objections.

Whether or not the final communiqué is, in the end, an effective document — one that will help get the financial world back on its feet again — will depend on each and every one of the G-20 countries and the extent to which they feel committed to implementing the goals agreed on. It is possible that the London summit will be a turning point, but it is by no means certain this will be the case.

But the mere fact that the G-20 leaders were able to arrive at an agreement on the contents of a joint communiqué after weeks of wrangling over principles can certainly be viewed as a success.

In the end, Germany and France gained points. To the disgruntlement of the British, the summit communiqué doesn’t call for further stimulus programs, rather only for billions in funds for the IMF, most of which had already been decided on anyway.

While the promise to put new spending programs in place was expressed rather vaguely, statements regarding financial market controls were more concrete than expected. The G-20 not only approved a comprehensive list of new rules for banks, ratings agencies and hedge funds — they also agreed to create a new international supervisory authority, the Financial Stability Board (FSB), as well as to accept Sarkozy’s list. From now on, that list will include the names of tax havens that are unwilling to cooperate with other countries in efforts to identify tax evaders.

While this is all a step in the right direction, it is far from constituting a final victory over speculation and tax evasion. It will take years before the declarations of intent made in London are implemented in national legislation and it is unlikely the spirit of unity that informed the summit can be sustained over a longer period of time.

And even if these doubts should prove to be unjustified, the London G-20 summit will not really defuse the global economic crisis. The biggest dangers to the global economy weren’t even addressed by the summit. The G-20 leaders paid no attention at all to the fact that bank balance sheets throughout the world continue to be burdened by toxic assets — i.e., mortgage-based securities, now worthless, constituting total risks in the trillions of dollars, and to the problem constituted by deadlocked trade talks.

Since 2001 the international community has been engaged in trade talks known as the Doha development round, aimed at lowering tariffs and farm subsidies in Europe and the United States as well as protecting patents and brand names in Asia. If the countries involved could come to an agreement this would lead to a tremendous spike in international trade that would have the effect of a stimulus package in the current crisis situation.

The London summit failed to agree on a date for concluding the Doha round. The call by experts for the WTO in Geneva to be given a stronger say in these matters wasn’t even put on the agenda for consideration.

Worse than that, the G-20 remained silent on growing imbalances in the global economy. Prior to the crisis consumers and companies in the United States accumulated debts on a gigantic scale. At the same time, countries like Germany, China and Japan showed considerable export surpluses. These imbalances are seen as being contributing causes of the current financial and economic crisis.

But instead of working to reduce existing imbalances, the countries in question seem to be intent on aggravating them further. The United States has created stimulus programs involving hundreds of billions of dollars that will expand an already huge public debt. Germany and China are providing support to their export industries with a view to continuing to achieve export surpluses. If a common strategy is not found soon that can overcome conflicting interests, the result could be new trade wars and currency instabilities.

As such, people in Asia, America and Europe have been left with mixed feelings about the outcome of the London summit. The G-20 leaders managed to avoid an open conflict, but their agreement basically served to deepen existing economic differences. Those of us who witnessed how passionately they squabbled over matters of secondary and tertiary importance have every reason to be skeptical that this situation is going to change any time soon.

It will take a number of further summits and policy shifts on the part of national governments before the G-20 will have earned the right to refer to itself as a global government that is looking to promote the good of the world as a whole. The world we saw in London was a world in transition. It was no longer the old world of nation states, but it was also not yet a new world capable of thinking in harmony.

When the G-20 leaders presented the results of the summit at their national press conferences on Thursday afternoon, they had Barack Obama’s warning words — not to sell the results of the summit short, not to show journalists the discord they want to see, and to display confidence — echoing in their ears.

Translated from the German by Paul Cohen and Larry Fisher.