Brian Fallow: One solution from 20 heads? Unlikely

If people were looking for a committee to save the world, a gathering of 20 national leaders was always going to be too unwieldy and divided to fill that bill.

The most useful outcome of the G20 summit is probably making US$1 trillion ($1.7 trillion) available for the International Monetary Fund.

With eastern Europe looking more and more like east Asia 12 years ago, such a war chest should provide some insurance against another wave of financial panic should those dominoes totter and fall.

There is, however, a conspicuous lack of any quantified pledge of additional fiscal stimulus within the G20 economies themselves, just lofty generalities about "doing whatever is necessary to restore confidence, growth and jobs".

It is all very well for them to say that collectively the fiscal expansion they already have in train will amount to US$5 trillion by the end of next year.

It is a lot of money, even measured against a global economy of US$60 trillion, give or take. But there is no indication of how it is defined. Does it include the vast sums being poured into propping up rickety banks? Or the automatic stabilisers - the fact that in a downturn tax revenues fall and benefit payments climb, with no further policy action.

The G20 says it will raise output by 4 per cent by the end of next year. But that would only reverse the decline in output this year which the OECD and IMF are forecasting.

British Prime Minister Gordon Brown, the meeting's host, reportedly declared the end of the "Washington consensus" about the liberating powers of financial market liberalisation, privatisation and unfettered capitalism.

Indeed the protesters on the streets outside seem pretty clear that the ruling idea of the past 25 years - that whatever the problem, the solution is a market and the less regulated the better - has come to an ignominious end.

But the Washington consensus includes a commitment to free trade and open investment markets, which needs to be defended.

The G20 leaders pledged not to raise new barriers to trade and investment. They said much the same at their previous meeting and yet the World Bank reckons most went ahead and did that anyway.

The focus on purging banks of their toxic assets and strengthening financial regulation is worthy if uninspiring stuff.

But it is wrong to regard the current mess simply as the handiwork of reckless banks and feckless borrowers in the English-speaking world.

It is the product of large external imbalances, most conspicuously across the North Pacific, between the deficit economies and export-driven surplus ones.

Both had got seriously out of kilter. Yet there is nothing in the communique which suggests the latter see themselves as anything other than innocent victims here.