By Barry Eichengreen, an expert on the Great Depression and author of 'Golden fetters: The gold standard and the great depression' Last Updated: 1:47PM BST 01 Apr 2009  Comments 5 | Comment on this article  Their statement was a pastiche of platitudes and generalities. This tells us two things.  First, we should not expect more of G20 leaders when they meet on Thursday. If finance ministers were short on specifics, then can we expect leaders, most of whom are not specialists in economics, to do better?  Second, we should recognize that the G20 is ill suited for crisis management. It is a large and heterogeneous grouping. Its members have very different priorities. Consensus building means bringing together not just the US and Europe but also Indonesia, whose concerns revolve around commodity prices, and Argentina, which is preoccupied by debt. Members vary in the severity of their recessions. They have different capacities for fiscal stimulus.  Some have stronger banking systems than others. Their regulatory priorities are all over the map.  This suggests the need for smaller groupings. Fiscal stimulus is best addressed at the level of the G7/8. These are the only countries big enough to make a difference. The same is true when it comes to topping up the IMF's funding. But this doesn't mean today's G7/8. Rather it means a 21st century G7/8 made up of the US the EU, Japan, China, Saudi Arabia, South Africa, Brazil and maybe Russia.  This group will not supplant the G20 but should operate alongside it.  But no international grouping, not the G20 and not the G7/8, can solve the current crisis. Conditions continue to deteriorate because of the failure of the US to recapitalise its banking system and of the EU to adequately support Eastern Europe. And this is something neither the G20 nor the G7/8 can fix.  The American authorities are reluctant to acknowledge that US banks are insolvent and inject the taxpayer funds needed to get them on their feet. And no bank recapitalisation means no recovery.  Eastern Europe, meanwhile, has seen the demand for its exports collapse, revealing its loss of competitiveness. It has experienced a sudden stop in capital inflows as Western European banks deleverage.  Its defaults threaten to drag down the European financial system and with it the European economy. Yet Germany and its neighbours remain in stiff-necked denial, refusing to bail out what they see as their irresponsible cousins.  Fixing the US banking system and saving Eastern Europe are critical for preventing the Great Recession from turning into a Great Depression. But they are issues about which the G20 can do nothing.  There can be no Grand Bargain where the US agrees to fix its banking system because the EU agrees to aid Eastern Europe. It is in the interest of the US to fix its banking system purely on domestic grounds. Similarly, it is in the EU's own interest to staunch the bleeding in its East and avoid blowback to its financial system, US bank recapitalisation or not. Saying to the Congress "we should recapitalise our banks because the EU requires this as a quid pro quo for taking the lead in Eastern Europe" would be a nonsequiter.  Similarly, is there reason to think that aid to Eastern Europe will go down more easily in Germany if the U.S. recapitalises its banks?  The G20 is irrelevant to this task because the constraints lie in domestic politics, not in international cooperation. It is domestic politics that prevent the Obama Administration from acknowledging the insolvency of the banks. Public opposition to "more bailouts" means that Congress is unwilling to appropriate the funds.  Administration officials are therefore forced to resort to backdoor recapitalisation by overpaying for toxic assets. They must leverage up their funds by enlisting the private sector; hence the public-private partnerships.  Likewise, in Europe it is domestic politics – reflecting German phobia of debt – that prevents more assistance to Eastern Europe. Hence aid for the region must be topped off by the IMF or, more likely, spooned out in tiny dollops. Again, the constraint is national politics, not international cooperation. It is a domestic political problem to whose solution the G20 can contribute nothing.  The G20 has a role as a venue for thinking about longer-term reforms.  It is useful for discussing the regulation of internationally active financial institutions and IMF governance reform – and maybe even for reaching consensus on these issues.  Putting it this way reminds us that the G20 is a process, not an event. Thinking of it as a process and recalling that it is suited for building a better firehouse rather than for putting out the current fire is necessary to avoid being disappointed by what comes out of the meeting on April 2nd.  Barry Eichengreen is George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley.
The world economy is in a relentless downward spiral but G20 finance ministers have barely noticed, judging from the communiqu&eacute; of their mid-March meeting.