The leaders of the G20 countries are meeting in Pittsburgh this week to plan the next steps to help bring the world out of the economic crisis. This is a good thing both because the G20 is the right group (broad enough to include the most important players but compact enough to maybe get something done) and because coordinated action is needed.

What would be reasonable goals for this round of G20 meetings?  Here is my checklist for the meetings.

  1. Coordinate plans for additional shared stimulus. We aren’t out of this mess yet (ask your banker about the potential for defaults on commercial loans), so it makes sense to keep the stimulus stream flowing for now. But it needs to be a shared burden otherwise global imbalances will increase (see below). It would be a mistake to imagine that China and the US can be the “engines” to pull the world economy out of the slump.
  2. We need to make progress on a coordinated “exit” plan so that stimulus turns into sustained growth and not either inflation or another recession. The inflation is a threat, of course, because of the tremendous money creation we have seen. The recession could be triggered either by a return of the financial crisis or by an over-action to the rising inflation. Getting out of this mess — putting on the brakes while still keeping one foot on the gas —  is not going to be easy. It will take a delicate touch and policy coordination.
  3. Global financial imbalances need to be reduced at the same time that we are stimulating growth and then backing off on stimulus. The EU will need to play its part in this but it has resisted doing so so far. Huge global imbalances are a roadblock to the next step of the process.
  4. Re-regulation of the financial system along the general lines of the Bretton Woods system, with much less dependency on international financial flows and much more emphasis on domestic financial regulations that control risk.

I’ll be interested to see how many of these items the G20 leaders are willing and able to address.