OTTAWA, June 8 /CNW Telbec/ - Reforms to the global financial system are at risk of falling by the wayside as economic growth resumes and differences emerge among the key players, according to a new report from the Conference Board of Canada's International Trade and Investment Centre (ITIC).
"The heady enthusiasm for international cooperation seen during the meeting of G20 leaders in Pittsburgh last September already seems to be dissipating," said John Pattison, co-author of the report, The Financial Crisis, Regulatory Reform and International Coordination: What Remains to Be Done. "As host of the G20 Summit this month, Canada has a leadership role to play in reinforcing the urgency to act, but on the right issues."
Based on the recent G20 discussions, the implementation of a global bank tax is becoming increasingly unlikely, which reflects the view of this report and that of a previous ITIC publication that Canada not support calls for managing international capital flows. Such a tax is difficult to enforce, and even if enforcement is feasible, the tax would not address the fundamental causes of the crisis - excessive leverage and risk-taking by financial institutions, opaque financial instruments and global current account imbalances.
World economic growth resumed in the second half of 2009 after the worst global downturn since the 1930s, but the European Union, Japan and the United States can expect a slow recovery. Furthermore, the conditions that led to the global imbalances are still in place, such as low interest rates that helped contribute to the speculative housing bubble.
"The world economy is at a key juncture. As economic growth resumes, it is to be expected that the urgency for reform will wane. If fundamental reforms are to be implemented at all, they need to be agreed upon soon," said Paul Masson, co-author of the report and Adjunct Professor and Research Fellow at the University of Toronto's Rotman School of Management.
This study provides a timely status report on recommendations outlined in a previous ITIC study by the same authors, International Financial Policy Reform and Options for Canada: Think Globally, Act Locally. The leaders of the G20 countries endorsed many of these recommendations in principle last September in Pittsburgh, but left details to be worked out in subsequent sessions.
Going into the G20 meeting this month, governments should consider taking action on national and local regulatory issues in their attempt to coordinate regulatory reform internationally. Not only is it difficult to strike agreements across many countries, such agreements are often compromises that then need to be tailored to each country's own needs.
The publication is produced for The Conference Board of Canada's International Trade and Investment Centre. The centre is intended to help Canadian leaders better understand what global economic dynamics - such as global and regional supply chains, domestic barriers to trade, US policies, or tighter border security - could mean for public policies and business strategies.
SOURCE Conference Board of Canada
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