Moreover, if developed countries continue to follow the "wartime-style" financial policy, they could further propel foreign funds to flood the emerging economies. But that cannot help their economies to tide over deflation risks. On the contrary, it would enlarge the bubbles in their economies.

The International Monetary Foundation has been insisting that before withdrawing their stimulus packages, the countries should reach a state of "financial soundness", show signs of a "market-driven recovery", and ensure that the withdrawal would be under well-coordinated economic policies in order to maintain stability of the world economy.

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But what is worrisome is that Germany, Europe's largest economy, follows a "tightened fiscal policy" and has banned open short sales to maintain financial stability, which could worsen Europe's fiscal and banking woes.

The US, as expected, is aiming to play the dominant role in the global financial regulatory reform, expand its exports, cut government expenditure and reinvigorate the dollar in disregard to other countries' currencies and financial stability.

Japan's enthusiastic investments in other Asian countries' infrastructure, environmental protection and power projects could make it more difficult for them, including China, to curb inflation and deflate bubbles.

The new British government has said it wants better cooperation with other EU countries. Besides imposing curbs on the banking sector, it also wants to advance the pound's competitiveness against the euro and rejuvenate its industry by stimulating the development of its manufacturing sector.

The policies of the developed economies in response to the global crisis, combined with the risks of fluctuation in the international commodity and finance markets, are not conducive to an effective policy outcome at the G20 Toronto Summit.

After the Pittsburgh Summit, G20 became one of the most important international forums of global policy coordination. But it is a multi-trillion-dollar question today whether the developed world can promote "fiscal soundness", and "financial normalization" and sustain a stable international financial system in the face of the multi-faceted crises, especially the lack of stimulus programs in European countries.

The author is a research scholar with the China Institutes of Contemporary International Relations.

China Forum

(China Daily 06/26/2010 page5)