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World Leaders agree grand compromise to fix economy

nw/sh, ap/afp/dpa/reutersApril 2, 2009

The G20 summit in London has ended with a sweeping combination of economic stimulus measures and financial reforms to fix the global economy. Leaders are praising the outcome as an historic response to major challenges.

Gordon Brown
Brown pulled off a successful summitImage: AP

World leaders have agreed Thursday to a grand compromise of new regulations and extra spending to end the worst economic downturn since the Great Depression.

"We will do what is necessary to restore growth," said G20 host and British Prime Minister Gordon Brown, ending what had been a tough round of negotiations on how to address the global economic crisis.

Symbolbild IWF und Schuldenkrise
The IMF is the main beneficiary of spending pledgesImage: AP Graphics/DW

The leaders of the Group of 20 major economic powers, meeting in London, pledged an additional $1 trillion (743 billion euros) to boost credit via international institutions.

The International Monetary Fund will see its budget tripled to $750 billion to assist developing countries, while the World Bank is to get an extra $100 billion. The extra money for the IMF is expected to reduce the risk that trouble in emerging markets, represented at the summit by countries like China and Brazil, could spread back to the rich world in a so-called negative feedback loop.

G20 leaders also agreed to a $250 billion plan to shore up global trade with the Paris-based Organization for Economic Cooperation and Development (OECD), amid signs that international trade is in freefall.

However, the summit's participants could not agree to additional spending measures, such as a US proposal for governments to commit to spending an extra two percent of GDP to counter the effects of recession.

Gordon Brown und Angela Merkel bei G20 Gipfel in London
Merkel and Brown bridged their differencesImage: AP

On the issue of tightening regulation in financial markets, a key priority for countries like Germany and France, G20 leaders agreed to undertake a raft of policies to rebuild trust.

These included efforts to regulate hedge funds, which have traditionally escaped the oversight required of most banks; a determination to eliminate conflicts of interest among credit ratings agencies; a crack down on tax havens, in an effort to name and shame jurisdictions that abet tax evasion; and mechanisms to link executive pay to performance.

Historic agreement?

German Chancellor Angela Merkel was among the world leaders who praised the summit's outcome. She called the agreement "very, very good" and an "almost historic compromise" that will give the world "a clear financial markets architecture."

Ahead of the conference, Merkel and French President Nicolas Sarkozy had insisted that the meeting needed to focus on reforming global markets instead of more fiscal stimulus - a measure to head off the economic downturn that is perceived to be the preferred response of the United States.

G20 Gipfel in London Barack Obama mit Delegation Südkorea
Obama was pleased with the resultImage: AP

Sarkozy, whose country had threatened to walk out on the talks if some of its demands were not met, said the G20 summit achieved "more than we could have hoped for" in one day of talks.

"The G20 countries have decided on a profound reform of the international financial architecture, which has not been done to such an extent since the Bretton Woods accords in 1945," he said.

Sarkozy also commended his American negotiating partner, US President Barack Obama, calling him a "very open man" and "completely in line with what we wanted: that politicians take their responsibilities."

Obama said all nations gave ground in their demands and acclaimed the outcome.

"The London summit was historic," Obama said. "It was historic because of the size and scope of the challenges we face, and because of the timeliness and magnitude of our response.

"We made enormous strides in committing ourselves to comprehensive reform of a failed regulatory system," he added, appearing visibly buoyed in a long and candid press conference at the close of the meeting.