Going beyond austerity

The euro crisis initially monopolized all attention at the G20 summit that ended on Friday in Cannes. But by the end, the leaders who represent 85 percent of the world's economy produced some agreements of interest, though one of them was by itself worth holding the meeting for: the decision, or at least the intention, to accompany budgetary orthodoxy (austerity) with selective reactivation of demand (stimulus) in the soundest countries, such as Germany and China, so as to spur the sluggish world economy, and dispel the specter of relapse into recession.

Many details remain to be worked out. But both Germans and Chinese assented to the expansion of their domestic demand, as a way of pulling the cart of other, less balanced economies; because austerity alone does not ensure the necessary growth.

From this point of view, the Cannes summit has, at least in part, recovered the innovative drive of the first two summits held after the Lehman crisis, in Washington and London. It thus breaks the downward trend in reformist decision-making since earlier encounters in Pittsburg, Toronto and Seoul.

Another, more strictly European development also deserves attention. Outstanding amid the mass of commitments ratifying decisions on debt reduction and tending to calm the member states is the imposition of far stricter supervision on Italy. The IMF will join the European Commission team that will observe the measures taken by Rome and see that it sticks to the promised rate of implementation of reforms. Though the official document says that this decision was made at the behest of Italy, Commission representatives made it clear that the decision was their own, and that the Berlusconi government simply went along with it.

These contradictory accounts underline the extent to which the Italian economy, after the Greek, is arousing deep concern and how, in consequence, it has been subjected to severe inspection, less only than that of a full bailout: in contrast to the treatment given to the economy of Spain which, unlike Italy, has done its homework on its own account.

The European leaders failed to obtain financial support from emerging countries for their rescue fund. There was not even any agreement to increase the IMF's funds to this end, owing to American insistence that increases in contributions go in step with higher vote quotas, and the emerging countries' belief that EU-arbitrated solutions are still unconvincing. An ethereal promise that the IMF will have all the resources it needs, served only to save face for its new director, Christine Lagarde.

The Cannes summit also reiterated the now-traditional rhetoric about broader and better financial regulation, ranging from banks to ratings agencies and tax havens. But it did open two promising doors: the linking of macroeconomic policy to the creation of employment, and a warm greeting to the proposal to put a tax on financial transactions. First steps, and relevant ones.