LONDON — A plan to solve the global recession emerged from the Group of 20 industrial and developing economies summit Thursday despite rifts among nations in the days leading up to the event.
The strategy includes infusing $5 trillion into the world economy to save and create jobs, moving away from a Western-dominated financial system and reforming the global banking system.
“The old Washington consensus is over,” said British Prime Minister Gordon Brown after the closed-door meeting Thursday afternoon.
Brown said the world agreed “to do whatever it takes” to solve the financial crisis and economic downturn but that “there are no quick fixes.”
The G-20 agreed to increase the International Monetary Fund’s lending power to $750 billion, money used to provide relief for poorer nations. It also unveiled a $250 billion expansion of the IMF’s reserve currency.
Brown announced that the IMF would step up its role, along with another new international regulation agency, to monitor and prevent future crises, but it was unclear exactly how this move would be interpreted by the nations.
While the U.S. wants to maintain a system of self-regulation, France and Germany, in particular, have pushed for a regulatory body with global authority, according to the Associated Press.
Earlier in the week, Treasury Secretary Tim Geithner told ABC News that the country has begun reining in the financial practices that led to the current downturn, characterizing the banking meltdown as a case of “people who took too much risk they didn’t have an understanding of.”
But while chalking up the crisis to greedy bankers has become commonplace, insufficient regulations are really to blame, said Mitchell Smith, an economics professor at the University of Oklahoma, said before the summit.
“The trick will be to develop a structure of regulation that doesn’t impede entrepreneurship and creativity but also doesn’t allow excessive risk,” he said.
Still, leaders agreed Thursday to reform the banking industry, regulate pay and bonuses for those who run it and draft new rules for hedge funds, Brown said.
Those measures should help restore confidence, an essential ingredient for lifting the economy, he said.
And the framework on which the current global economy operates is at a crossroads as developing countries such as China and Russia demand greater influence on the global system.
“I think the new world order is emerging,” Brown said. “Today’s decisions will not immediately solve the crisis but we’ve begun the process.”
Meetings leading up to the G-20 summit have set a new tone for the U.S. diplomacy. President Barack Obama and Russian President Dmitry Medvedev agreed Wednesday to work together on a new nuclear warhead reduction treaty, according to joint statements released by the two countries.
Brown said the G-20 would meet later this year to review its progress and implementation of the new policies.
