The world is at a dangerous point. Governments seem unprepared for the next round of difficulties that will arise as the recession grows and financial crises spread to emerging markets. Economically and financially, there is a clear sense that things are spiralling out of control again. The G20 meeting in Washington next weekend is an opportunity for leaders to show that they have the will to solve the global crisis. In an E-book from VoxEU.org - edited by Barry Eichengreen and Richard Baldwin - some of the world's leading economists provide essays from on what the G20 should do. The authors identify four priorities for action:
1. In the financial sector, apply triage to stop the bleeding; in the real sector, use fiscal stimuli: There is unanimity on this. Governments need to move fast - and coordinate their actions - in recapitalising banks, guaranteeing cross-border bank claims, restructuring non-performing assets, and extending financial support for crisis countries. Similarly, there is an urgent need for an immediate, substantial, internationally coordinated fiscal stimulus. Here China has shown leadership, and other countries should follow. Leaders from some countries may argue that they cannot - that their national circumstances are special. This cannot be accepted: commitments should be announced on 15 November.
2. Strengthen the ability of existing institutions to deal with the crisis in emerging markets: The most urgent task is to augment IMF resources immediately so that the institution has adequate firepower. There are a variety of ways to do this, but absolutely no dissent from the view that action must be taken now.
3. Start thinking outside the box about longer term reforms: Several contributors argue for new approaches to the regulation of large cross-border financial institutions: an International Bank Charter, a World Financial Organisation, an International Insolvency Mechanism for financial institutions, or even a single global regulator. None of these proposals can come to fruition on November 15th but it is essential to start discussing them now.
4. Do no harm: The contributors argue for caution in introducing new regulation: don't clamp down so hard on financial institutions and transactions that they stop providing intermediation services or innovating. And don't respond to deep recession with protectionist measures that beggar one's neighbours and destroy the world trading system. In their communiqué, the G20 leaders should promise to avoid such actions - and announce immediate steps to make this commitment credible.