Finance Minister Jim Flaherty is urging his G20 counterparts not to get distracted by sharp divisions over a global bank tax and instead focus on preventing banks from making the risky choices that triggered the global recession.
Mr. Flaherty is in Busan for a two-day summit of G20 finance ministers and central bankers that he says has so far been dominated by concern over the European economy.
During the large meetings and smaller one-on-ones with other finance ministers, Mr. Flaherty will get a clearer sense of where the member countries agree and disagree in advance of the G20 leaders' summit in Toronto later this month.
Canada was an early and vocal critic of bank tax proposals coming from Europe and the United States and Mr. Flaherty said his recent travels revealed that if there is any momentum in the debate, it is on the side of those opposing the tax.
"On bank levies, there is no consensus," he told Canadian reporters in advance of the opening dinner. "As a general rule of thumb, you can assume that a country that did not have to use taxpayers' money to bail out its banks is not supportive of imposing a levy ex ante on its banks, and I've had these discussions in India, China and last week in South America."
Mr. Flaherty said there is an attempt within the G20 to come up with general principles that can be supported by all members.
"The key element is quantity and quality of capital and caps on leverage and not be distracted by other issues," he said.
Because Canada hosts the G20 later this month, Canada co-chairs this meeting of finance ministers along with the South Korean hosts. A second G20 leaders summit is scheduled for Seoul in November.
This is the last opportunity for the G20 to hammer out whether they will have anything to announce when the leaders meet in Toronto. That may prove a tall order as agreement on the major issues before them remain a few months away, if at all.
That's partly because when G20 leaders met last September in Pittsburgh, they gave themselves until late 2010 to work out many of the key issues they face. As a result, the Toronto meeting is essentially a pit stop on the road to Seoul, in spite of the Toronto summit's $1-billion security cost.
Those issues scheduled to be cleared up in November are among the discussion topics on the agenda this weekend in Busan.
Over dinner Friday night, the finance ministers and central bankers will receive a new report from the International Monetary Fund on the state of the global economy. That will lead in to a debate over how and when to unwind the massive stimulus spending designed to ease the impact of the recession.
While the G20 agreed to act together with stimulus packages at the start of the recession, the exit strategy is proving more complicated as G20 members are now in vastly different circumstances. Many developing countries are posting high growth while Europe struggles to avoid a full-blown debt crisis.
Mr. Flaherty said the troubles of Greece and other heavily indebted European governments dominated conversations ahead of the meeting.
"It is essential to ensure continued recovery that Europe fix its banks. It is essential that certain vulnerable European nations follow through with major fiscal consolidation, and get the job done," Mr. Flaherty said.
On Saturday, the meeting will include sessions on the future of the G20, the possibility of new banking reforms related to capital and liquidity rules, the reform of international financial organizations like the International Monetary Fund and the World Bank and the "global safety net." The later is the official heading for the debate over a bank tax, which has dominated as the G20's highest-profile issue given the obvious and very public divide between supporters and opponents.
Europe and the United States favour the idea, but Canada has spearheaded the anti-bank tax campaign with a counter-proposal that would force banks to build up their own "contingent capital" reserves in the event of another credit meltdown.
A closing session on "other issues" is expected to include talk regarding the G20's pledge to phase out tax-incentives for the oil and gas sector.
With a file from Reuters