Barack Obama has agreed and signed a document which allows other countries to look at our budget and give recommendations based upon debt, taxes and spending. How much do you want to bet that other countries will tell us that our taxes are not high enough and that we don't spend enough money on health care or social programs?
The group that oversees the process is the Financial Stabiilty Board(FSB) which started out small but could become eventually as powerful as the IMF or World Bank with the power to propose regulations and taxes. You probably haven't heard of this program, but in the future you will.
The fourth pillar from the full text of the G8 Summit, via G20 Summit declaration:
22. The fourth pillar is transparent international assessment and peer review. We have strengthened our commitment to the IMF/World Bank Financial Sector Assessment Program (FSAP) and pledge to support robust and transparent peer review through the FSB. We are addressing non-cooperative jurisdictions based on comprehensive, consistent, and transparent assessment with respect to tax havens, the fight against money laundering and terrorist financing and the adherence to prudential standards.I added the emphasis as prudential standards typically means taxing and spending policy, but, like the general welfare clause in the consitution, is vague enough to allow a very broad interpretation.
There is more on the peer review them from the FSB website:
40. We will undertake a FSB thematic peer review of actions taken by national authorities to implement our Principles and implementation standards. We will assess whether these actions have had their intended effect and propose additional measures as required. This review will be completed in March 2010.So now how banks choose to compensate their employees not only is subject to US regulators but now international scrutiny by the FSB.
41. These actions are in addition to our call for banks to conserve capital by limiting bonus payments today and so be in a better position to meet future additional capital requirements.
51. Within this framework, we are also developing a system of peer reviews among FSB members, based among other evidence on the findings of IMF and World Bank assessments, and will report on their outcome. These will comprise both single-country and thematic reviews to assess our implementation of international financial standards and of policies agreed in the FSB and determine whether additional steps are needed to reach the intended results. Both modalities will be developed in parallel. Actual reviews will start by end-2009 with the thematic peer review on the implementation of the FSB compensation principles.
I'm not the only one that has come to this conclusion. Read the assessment of the group's decision to allow "Peer Review". Do we really want France or China to review our budget? I don't think it is a good idea if we want to maintain our unique position in the world, via Globe and Mail:
Against significant odds, the Group of 20 is moving closer to its goal of rebalancing the global economy.
In a surprising show of faith in an institution that has met only four times, leaders from countries as disparate as Germany and Saudi Arabia agreed Sunday in Toronto to subject their domestic economic programs to peer review within the G20.
By this fall’s Seoul summit, countries have promised to explain in some detail how their domestic policies are helping to achieve the G20’s goal of reducing the excessive mismatches in spending and saving that exacerbated the financial crisis. Then, with the help of the IMF and its expertise in economic modelling, the other members will assess whether each partner is doing enough.
The commitment is historic.
The promise by each leader to agree to put his or her cards on the table adds a level of transparency and credibility that the process lacked until now. While economic co-ordination has been tried before, it has been with lesser officials or the International Monetary Fund as the arbiter. Now, the accountability rests at the highest levels. Where previous failures could be blamed on bureaucratic deadlock, global economic co-operation is now a political imperative in the hands of presidents and prime ministers.
The increased transparency could even encourage competition among members to implement policies that curry favour with investors.
Since the review remains a voluntary exercise without penalties, success will depend on G20 members taking the process seriously, both by submitting credible policies and showing the courage to offer tough, but fair, criticism. Given how these countries allowed the global economy to get so out of whack in the first place, there is reason to be skeptical they have what it takes to deliver, especially as the economy improves.
Still, “it’s a pretty significant step,” said Tim Adams, managing director at the Lindsey Group consultancy in Fairfax, Va., and a former undersecretary of international affairs at the U.S. Treasury Department. “It creates the potential that this will become a serious exercise.”