For all the Republican talk in the US about how president Barack Obama seeks to transplant "European socialism" across the Atlantic Ocean, it is telling that European Union leaders are the ones opposing government handouts, emphasising instead the need to tighten up regulations.

This split between Washington and Europe’s capitals remains one of the main talking points before the April 2 summit of the G20 group of developed economies, despite the best efforts of the G20 finance ministers and central bankers, who met on March 13-14 at Horsham in the south of England to lay the groundwork for the London summit.

The meeting produced an eight-point communique, tackling two major policy areas – restoring global growth and strengthening the financial system. But while general support to increase the funding available to the International Monetary Fund (IMF) appears widespread, divisions over the size and scope of economic stimulus policies remain.

What was agreed
Its importance increasingly marginalised since the turn of the millennium, the IMF seems to have been given a new lease of life by the current crisis. Rightly or wrongly, after the 1990s having to borrow from the Fund became a stigma that governments were keen to avoid. The perception still lingers, but matters less because of the widespread economies woes. The IMF could yet play an important role as a fire-fighting institution, dashing around the world to douse the worst of the fires.

To do so, it would need more than the $250 billion it has at its disposal, with IMF president Dominique Strauss-Kahn asking earlier this year that the amount be doubled.
Without committing to a specific figure, the G20 finance officials said that they "agreed on the urgent need to increase IMF resources very substantially".

"This could include further bilateral support, a significantly expanded and increased New Arrangements to Borrow and an accelerated quota review," the meeting’s final communique read.

Expanding on the accelerated quota review issue, the statement said that "emerging and developing economies, including the poorest, should have a greater voice and representation and the next review of IMF quotas should be concluded by January 2011."

World Bank reforms would have to be completed by spring 2010 and the heads of the two insitutions "should be appointed through open, merit based selection processes", suggesting an end to the traditional arrangement in which the US nominated the president of the World Bank and Europe did the same with the IMF.

International financial institutions reform is among the key demands by the big emerging economies, who are now being asked to contribute more to the IMF. Speaking on behalf of BRIC, the informal group of four fast growing developing economies – Brazil, Russia, India, and China – Brazilian finance minister Guido Mantega said, as quoted by Reuters, that "there is still imbalance in the representation at the IMF."

"There will be no additional funding (by BRIC) to the IMF as long as the representation of the BRICs does not change."

Bridging the gap?
Agreement on the IMF might yet save the summit in London, some observers said, and paper over the cracks between the two sides of the Atlantic on the issue of tax cuts and increased government spending to battle the global recession.

US treasury secretary Timothy Geithner reportedly lobbied at the G20 meeting for other countries to inject at least two per cent of their gross domestic products as financial stimulus, but had little success in the face of European opposition. The final communique went only as far as to "reaffirm ... commitment to take all necessary actions to ensure
the soundness of systemically important institutions."

After the summit, Obama downplayed divisions. "There’s no conflict or contradiction between the positions of the G20 countries and how we’re going to be moving forward," he said after meeting Brazilian president Luiz Inacio Lula da Silva in Washington on March 14. "There’s going to be a difference in details. Those are being worked on right now. I expect to have a productive meeting."

Germany and France, who lead the opposition to increased fiscal stimulus, have emphasised the need for tighter regulation. With the EU’s stimulus package worth more than 400 billion euro, or 3.3 percent of the bloc’s GDP, it was already doing enough, French president Nicolas Sarkozy and German chancellor Angela Merkel said on March 17 in a joint letter to European Commission president Jose Manuel Barroso and Mirek Topolanek, the Czech prime minister, whose country holds the rotating EU presidency.

"Excessive public indebtedness threatens long-term global stability. Healthy public finances thus remain crucial for the credibility and stability of the European Union," the letter said, as quoted by Deutsche Welle.

Instead, the top priority was to draft a "new global financial architecture."

"We are determined to achieve concrete results at the London summit for further measures to strengthen international financial market regulation," the letter said.
On this issue, at least, there is no dissent in Washington. "We have to do financial regulation, and nobody is going to be a more vigorous promoter of the need for reform," Obama said three days earlier.

Just how that would be done, however, remains unclear, with the finance ministers and central bankers’ communique shedding little light on the issue beyond recommending that the London summit ensures that "all systemically important financial institutions, markets and instruments are subject to an appropriate degree of regulation and oversight".