Finance Minister Jim FlahertyMark Blinch/Reuters
The world's leading economies set aside a contentious debate over a global bank tax as Greece's fiscal crisis provided a stark reminder that the path out of recession remains treacherous.
With a member of the European Union pushed to the brink of default, the ideological clash within the Group of 20 nations over whether a levy on banks is the best way to ensure taxpayers avoid footing the bill for future financial bailouts took on an air of triviality.
Finance ministers and central bankers entered their meeting with the news that Prime Minister George Papandreou called for the activation of a joint European Union-International Monetary Fund financial backstop, conceding that the mere promise of support failed to persuade investors that Greece could avoid default.
Greece isn't a member of the G20. Still, the country's struggles make real what until now had been an abstract threat for the group that emerged last year as the steering committee for the global economy. With sovereign debt the highest since the Second World War, investors are growing wary that governments will make good on their obligations. The risk is Greece's woes spread, snuffing out the recovery.
"We did discuss the situation in Greece," Canadian Finance Minister Jim Flaherty, who co-chaired the meeting with his South Korean counterpart, Yoon Jeung-Hyun, said at a press conference. "I can assure you there is concern that we get a resolution of this situation,"
Ministers and central bankers didn't mention Greece specifically in the statement they issued at their meeting, which lasted the day. However, they stressed the importance of taking expanding deficits and debt seriously, and in a way that respects the collective good.
"We should all elaborate credible exit strategies from extraordinary macroeconomic and financial support measures that are tailored to individual country circumstances while taking into account any spillovers," the G20 statement said. "I encourage the IMF and the EU to move quickly," U.S. Treasury Secretary Timothy Geithner said at a separate press conference.
Greece aside, ministers and central bankers said in their statement that the global recovery "has progressed better than previously anticipated largely due to the G20's unprecedented and concerted policy effort." They expressed worry over the uneven nature of the rebound, and over unemployment that is "still high in many economies."
They also pledged to complete their work on overhauling international financial regulations on schedule, with an emphasis on achieving appropriate minimum standards for the amount and type of capital banks keep in reserve and the level of debt they take on.
The G20's position on a global bank levy is another matter.
They failed to come to a conclusion and said they would take up the matter again in June. They also said more study is needed, characterizing an initial effort by the IMF as incomplete.
"We call on the IMF for further work on options to ensure domestic financial institutions bear the burden of any extraordinary government interventions where they occur, address their excessive risk taking and help promote a level playing field, taking into consideration individual countries' circumstances," the statement said.
Britain, Germany, France and the United States - among the world's most powerful nations - all have been supportive of a global bank tax.
The decision to order the IMF back to the drawing board suggests that Mr. Flaherty, who was the co-chair of the meeting, was successful in rallying countries such as Australia and Russia to resist the push for a global levy.
For weeks, Mr. Flaherty has mounted a vocal stand against the pro-tax lobby, saying it would unfairly punish countries such as Canada who avoided multi-billion bank rescues during the financial crisis.
While Mr. Flaherty might have won this skirmish, the debate is far from over. Mr. Geithner, for instance, said the U.S. would proceed with a tax on banks' leverage, and predicted that other nations would follow once they see what the Obama administration has in store.
"The fact that the G20 didn't endorse a bank levy today is good news," said Nancy Hughes Anthony, president of the Canadian Bankers Association. "However, the idea is still alive and we have more work to do to make sure other options are considered."