After two days of talks, the G20 has ended up at the lowest common denominator.
An agreement to develop “indicative guidelines” to help identify large current account imbalances that risk destabilising the global economy was the bare minimum expected of the leaders of the world's 20 major economies.
By giving finance ministers the task of working out the indicators that will constitute the guidelines, the G20 will invite criticism that it is just kicking the can down the road.
Sceptics will say that a smaller, more cohesive group would have acted more decisively, especially at a time when – in the words of a closing communique – tensions and vulnerabilities in the international monetary system are plainly apparent.
Those tensions, especially between the United States and China over the yuan, could yet become unmanageable.
Against this difficult background, the G20 did itself no favours. The divisions between surplus and deficit countries as to how to share the burden of global adjustment are papered over in the closing communique, but they are all too visible.
US Treasury Secretary Timothy Geithner had abandoned his proposal for numerical targets for current account balances before coming to Seoul in the face of implacable Chinese and German opposition.
But the G20 could not even agree how to describe the vaguer alternative of guidelines. A draft of the communique had dithered between “measurable” and “quantitative and qualitative”. In the end no description was applied.
And what purpose should these guidelines serve?
The draft had suggested they might work as an “alert” or “detection” mechanism. The words, though, were in brackets, denoting disagreement.
Sure enough, they did not find their way into the final declaration: for some countries either word would have smacked of automaticity, an obligation to switch policy course at the behest of its peers.
Finally, the G20 leaders gave themselves plenty of time to draw up the guidelines. Initially, they were going to instruct their finance minister to have finished the job by spring. In the end, they merely asked for a progress report in the first half of next year.
In short, the sense of urgency coursing through markets about the need to restore faith in the global economic and monetary order is conspicuous by its absence in the Seoul Declaration.
But will the world now descend into a nether world of trade barriers and currency wars? Not necessarily.
Still relevant
One of the few heartening outcomes of the 2008 global financial crisis is that protectionism has been contained. There has been no replay of the tit-for-tat tariffs of the 1930s despite low growth and high unemployment in the West.
On the currency front, expect some countries to follow the example of Brazil and Thailand and resort to capital controls to slow unwanted capital inflows.
But the G20 has drawn the sting from the issue by saying emerging economies with overvalued exchange rates are justified in taking “macroprudential” measures to ward off capital inflows.
The G20 has met low expectations. The agreement is weak. But it is at least an agreement that keeps a disparate group heading in the right direction.
Critically, a deal that President Obama called a “hard-won consensus” buys time for the United States and China to keep working out ways to reduce their politically contentious bilateral trade deficit – the crux of the problem.
“I am not saying we are going to solve each and every one of these problems”, British PM David Cameron said after listing the issues that confronted the Seoul summit.
“I am not saying that the G20 is in its heroic phase as it was during the 2008 crisis, but I would challenge those who say that the G20 is losing its relevance. I do not accept that.”
