Attempts at protectionism, competitive devaluations and cross-border distrust are unsurprising consequences of long, deep and widespread economic contractions. Little of the current tensions is new. In the Great Depression, the volume of world trade declined dramatically and witheringly, the international monetary system unraveled to give way to the creation of blocs, and economic distrust and hostility swept through the system.

The economic consequences of these "wars" can be disastrous. As an example, let's imagine two neighborhood stores that decide to lower their prices "just a little more" to attract customers. Successive price reductions could lead both of them to ruin, but what would happen if one of the two stores refused to "play along" and did not lower its prices?

The one that did so would probably attract more buyers and could, in the extreme case, completely displace the other. Something like this happens with currency devaluations and other competitive situations in times of crisis. Entering the game can be bad for everyone, but standing on the sidelines while others take action can be even worse for the abstainer.

Avoiding pernicious spirals

One possible solution to the dilemma is to try to bring the players (in this case countries or blocs of countries) together to reach agreements that avoid pernicious spirals.

International institutions and agreements are one way of trying to bring about win-win pacts. And yet, for the strategy to work, there must be a broad consensus and a determined will not to deviate from the path of cooperation. The G-20 is one such mechanism. Since 1999, it has brought together finance ministers and central bank heads (sometimes also presidents and prime ministers) from 19 nations plus the European Union to discuss issues related to the international financial system. Its members account for approximately 85% of the value of world production.

The institution, direct heir to similar meetings such as the G-6, G-7 and G-8, received much attention in 2008, when the United States convened the first meeting to deal with the global crisis. Since then, criticism and praise for the work of group have been repeated, usually following the tempo of its resolutions or meetings.

On the negative side, there is little capacity to prevent even the participants in its meetings from engaging in bad practices, and the lack of transparency that marks the meetings of group calls into question their moral and institutional validity.

The voices in favor point to the improvement brought about by the introduction of the emerging countries in the talks, and to the overcoming of the G7+1 as a forum for discussion on economic issues. Coordination (or at least the appearance of coordination) in the response to the crisis is also one of the strengths of the G-20.

The results of the last meeting are, in this sense, not very surprising. The declarations of principle regarding the denunciation of artificial currency devaluation as a basis for boosting exports, the desirability of strengthening the financial system and reducing tensions arising from trade divergences are significant gestures, but gestures nonetheless.

The attendees have not been able to reach agreement on concrete measures, but that does not mean that there will not be positive results. The promised IMF inspections signal to markets a willingness to progress along cooperative paths and boost confidence, and global attention may also facilitate action that would otherwise be delayed. Formal resolutions, whose non-compliance would be not only expected but almost certain, have left room for possible informal agreements. Whether these agreements will come to pass, and what their effects will be, remains an unanswered question.