World Business

G20 to back euro zone on debt, sidestep bank levy

(Agencies)
Updated: 2010-06-04 11:43

Geithner confident

But speaking on his way to this South Korean port city, US Treasury Secretary Timothy Geithner expressed confidence that the global economy was strong enough to ride out Europe's troubles.

"We have a moderate but pretty solid recovery in place," Geithner told CNBC television from Alaska.

"The world economy came into this period of concern about Europe with stronger underlying momentum and growth than many people expected, and we're in a much stronger position to get through this," he added.

Turning to the other main item on the G20's agenda, Geithner said the G20 shared a commitment on the need for common standards across global financial markets that will constrain some of the risk-taking that helped fuel the 2007/08 financial crisis, the worst since the 1930s.

Fierce opposition from Canada, among others, has torpedoed the idea of a global bank levy to pay for any future bailout. Rich-country taxpayers had to fork out trillions of billions of dollars to rescue banks felled by the crisis.

Instead, finance ministers will work on a menu of options for their political leaders to endorse at a summit in Toronto at the end of the month with a view to making more specific commitments at a follow-up summit in Seoul in November.

"Different countries' banking sectors are in different situations. So there won't be a one-size-fits-all policy," Sakong said.

G20 governments, with the support of the IMF, would make a mutual assessment of the spillover effects of each member's proposed policies, he said.

He acknowledged that this could lead big global banks to shifting some of their business to take advantage of less onerous rules, a concern also expressed by Geithner.

"Risk doesn't respect national boundaries. It's going to move to where the constraints are weakest," he told CNBC.

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"We all have an important stake in making sure we have a strong set of consistent standards in place across these global markets, across these global institutions and what we're going to try to do in Korea is to try to make sure ... we're solidifying that consensus," Geithner added.

The meeting in Busan will also try to thrash out an agreement ahead of the Toronto summit on how to tackle "too big to fail" banks.

Policymakers want to make it easy and quick to wind up an ailing bank so that it does not destabilize the broader financial system, as investment bank Lehman Brothers did when it crashed in 2008.

But, as with the levy, the G20 is expected to end up endorsing general principles rather than a uniform set of remedies.