G20 a success for not failing

When it comes to the right blend of optimism and pessimism it's hard to top The Beatles at their peak.

"It's getting better all the time," sings a chipper Paul McCartney. "Can't get no worse," counters the laconic John Lennon.

That Sgt Pepper-era tune would make a good soundtrack for this week which has culminated with a G20-inspired surge of exuberance on world markets.

Even commodity markets staged a tentative rally this week. Could it be that things are actually getting better?

Those who've followed the financial crisis closely to this point could be forgiven for remaining sceptical.

The G20 leaders yesterday boldly agreed to make the global recession go away. They patted themselves on their backs and headed home to reassure respective populations that we've turned a corner.

Two cheers for them. At least they didn't make things any worse - always a prospect with French President Nicholas Sarkozy threatening a walkout if things didn't go his way. In the end Sarkozy declared the results of the G20 "beyond his expectations".

"We would never have hoped to get so much. This is not the victory of one camp against the other, but shows the growing awareness that the world needs to change," Sarkozy said.

In French that translates as: "This is a victory for our camp".

In the US and UK financial sectors there is disappointment that the summit failed to deliver any new bailout money for ailing financial institutions. Moves to regulate markets and traders also look stricter than expected. But Barack Obama and Gordon Brown appear to have played it cool this time. The downside risk of the talks collapsing was always more serious than the prospect that one meeting could really save the world.

Markets need confidence more than anything right now and the sight of the world leaders all smiling together on one stage was enough to give them a boost yesterday.

In the longer term the US and UK will have to wait and see if the freshly printed "quantitative easing" cash can unlock the coffers of the big banks.

That the G20 has given the IMF firepower to stop smaller nations collapsing is not a bad thing and there were some positive words from all sides about world trade which - if they are to be believed - are good news for New Zealand. In fact US$250 billion ($428 billion) has been committed to providing credit guarantees for international trade.

That sounds like a good safety net to ensure trade continues without fear of cash strapped nations defaulting on payment.

In the end any steps forward - however small - need to be recognised and celebrated. But through the coming months the world needs to avoid bipolar swings from extreme optimism to extreme pessimism. We get enough of that on equity markets week in and week out. Recoveries don't happen in straight lines. The good news and bad news will overlap for some time yet. We need to make like McCartney and Lennon, hitting that sweet note between romanticism
and cynicism.