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. Last Updated: 07/27/2016

G20 Panned for ‘Mission Accomplished’ Moment

PITTSBURGH — The G20 may face a “mission accomplished” moment akin to former U.S. President George W. Bush’s premature declaration of victory in Iraq unless leaders quickly make good on pledges for substantive financial reforms.

Leaders from the Group of 20 rich and developing nations were so confident that they had succeeded in tackling the global financial crisis and recession that they included in the preamble of their final statement on Friday this bold, two-word declarative sentence: “It worked.”

“It’s hubris,” said Simon Johnson, a former chief economist of the International Monetary Fund.

Johnson, who is now a senior fellow at the Peterson Institute for International Economics in Washington, listed possible pitfalls including growing losses on commercial real estate loans, the need to recapitalize European banks and stubbornly high unemployment in most developed countries.

Any of those has the potential to trigger an economic setback serious enough to force a rethinking of policy.

Even though G20 leaders insisted that they were on guard against complacency, Johnson said they may have assumed success too soon, much like Bush’s infamous May 2003 Iraq speech on an aircraft carrier in front of a banner that read “mission accomplished.”

“What can you point to in terms of real regulatory reform since April?” Johnson said, referring to the last G20 leaders’ summit in London.

The G20 acknowledged that there was considerable work to be done to make the global economy less susceptible to crises, and said they would work toward “growth without cycles of boom and bust and markets that foster responsibility not recklessness.”

Anil Kashyap, a professor at the University of Chicago’s Booth School of Business, said he would give the G20 an “incomplete” grade.

“It’s too early to tell whether they’ve got a reasonable exit strategy for unwinding some of the things they’ve done, and it’s really unfortunate that they haven’t attended to some of the gaps in the regulatory arrangements,” he said.

The G20 leaders have won plaudits for the estimated $5 trillion that they have collectively injected into their economies to revive growth. Cross-border cooperation among central banks helped to ease a credit crunch, as did emergency loans and guarantees put in place to restore the flow of credit to consumers and businesses.

But big questions remain about how healthy the global economy will look once those crutches are removed, which the G20 acknowledged when it committed to keeping supports in place until sustainable recovery is assured.

Kashyap was most concerned that the United States had yet to come up with a way of safely shutting down large financial firms in danger of a disorderly collapse so that they don’t trigger a global panic as did the failure of the Lehman Brothers investment bank in September 2008.