There won't be a shortage of grand words when the G-20 summit wraps up on Friday in Pittsburgh. At the press conference at the end of the finance summit, world leaders are likely to present themselves as the saviors of the world. For US President Barack Obama it will be a chance to grab some positive headlines to counter-act the recent dive he's taken in recent opinion polls.

For German Chancellor Angela Merkel it will be the grand finale of her election campaign. Two days ahead of Sunday's general election in Germany, it'll be a welcome opportunity to appear on the international stage.

It's easy to guess that the overall tone of Pittsburgh will be one of content and optimism.

But what is it that the world's 20 leading economies have actually achieved since their first meeting in Washington in November 2008? The goal was an overhaul of the world's financial architecture to prevent a similar crisis from ever happening again.

Taming the greed

The idea was that no financial product and no financial market should be able to escape regulation in the future. Special focus was placed on speculative hedge funds, rating agencies, bankers' bonuses and tax havens. In short: the aim was to tame the greed that many experts consider the heart of the global crisis.

Today there's often a sense of resignation – a sense that no one has really learned from the crisis. Once again the headlines are filled with news about fat bonus payments. Banks are once more making billions in profits, and the party on Wall Street and other financial hubs around the world seems to be continuing as if nothing happened.

While this perception may be true in some cases, there have been changes for the better. Several financial institutions have indeed undergone reforms and begun questioning the excessive payouts handed out on their top floors. Likewise, first steps have been taken against tax havens across the world. And indeed, banks today have to have more equity capital to protect them against risky speculation based on borrowed capital.

And yet, all of this is not enough. Far too much the debate in recent weeks has focused on bonus payments. It's a debate playing into the hands of election campaigns: by curbing bankers' bonuses, politicians can be sold as battling gross social injustice.

But reforming the banking system will take more than merely putting a cap on bonus payments. Banks should be limited in their size to prevent financial institutions from growing into giants so large that their failure could cause the entire financial system to collapse. Similarly, banks mustn't be allowed to blackmail governments into bailing them out only to prevent further havoc on the markets.

EU and US no longer in the front row

The agenda that the EU will bring to Pittsburgh clearly leans in this direction. But European leaders won't be able to push it through. The world's two biggest banks these days are not from Europe or from the US – they are from China. And it's hard to imagine that the Chinese president will agree to any measures that may interfere with the balance sheets of Chinese banks.

There is yet another problem: The good news about a budding economic recovery in Europe and the US has taken some of the pressure off institutions and decision-makers charged with implementing reforms. Germany, for example, has already climbed out of recession.

So the challenge of Pittsburgh will be to once more build on the momentum gained at previous summits in Washington and London. The danger is that in the end there will be little more than declarations of good intent.

One thing that is sure to emerge at the Pittsburgh summit - as in the cases of Washington and London - is the sketchy outline of a new world order.

The G-8, as the self-declared rulers of the world, is a thing of the past. It cannot solve the problems that its own members have brought upon the world.

The G-20 is much more suitable forum for representing the world, which is why the upcoming G-8 summit in Canada next year will most likely simply be changed into a G-20 meeting.

Author: Henrik Boehme (ai)
Editor: Sam Edmonds