HOW TO repair a ticking clock? The leaders of the G20 group of developed and developing economies who meet in Washington this weekend face a similar challenge, confronted by a world financial system in deepening crisis. Their aim is to restore some order and stability by greater global economic co-operation and by boosting private sector demand. The high expectations set for the Washington summit, heralded as a sequel to the Bretton Woods conference that reshaped the global financial system in 1944, have been moderated. That conference took two years to prepare and set up the International Monetary Fund, the World Bank and a system of exchange rate management that lasted until the 1970s. This summit has been hastily convened in a matter of weeks.
In 1944, the US was the dominant political and financial power in a world struggling to recover from the ravages of war and economic depression. Now, in the midst of a global financial crisis where recession risks giving way to depression, the US's global influence - like its economy - is reduced. The Group of 20 meeting is presided over by an outgoing US president: president-elect Obama chose not to attend. And US treasury secretary Hank Paulson is also serving out his notice. In such circumstances can much of value really be achieved?
One problem is that many of the 20 countries attending the summit have different priorities. Political leaders, however, share a common concern to solve a mutual problem which should make compromise and agreement easier to achieve. The Washington summit may well represent the start of a process to create a new world financial order. And it can best do so by outlining and agreeing a reform agenda for the months ahead.
Certainly the Group of 20 meeting reflects a necessary realism about the changing balance of global economic power. For international finance is no longer the monopoly concern of the G8, the world's richest democracies. The arrival of China, India, Brazil and Russia as the new engines of growth in the world economy has changed all that. Their involvement and agreement is central to the success of a new global financial system. Already, China has shown some willingness to accept a greater international role, via its €460 billion stimulus package this week. But in the world of global capital markets one lesson from this financial crisis is the need for a global financial regulator. There, however, the willingness of governments to cede sovereignty to supra-national regulation remains very much in question.