New financial instruments are key to a strong domestic financial market, according to a Group of 20 workshop in 2004. The great thing about innovations such as securitisation and derivative markets, the G-20 continued, is that they allow “a greater diversification of risk”. Whoops!

Unfortunately, the world’s finance ministers and central bank governors meeting again in Toronto this weekend were hardly humbled by the subsequent meltdown. On the contrary. The G20’s assessment of its effort to tackle the “greatest challenge to the world economy in our generation” was given its own bullet point in September’s communiqué: “It worked”. Will the G20 look foolish again?

To be fair, the global economy and financial markets were recovering by the end of last year. They would have been hard pressed not to, with near-zero interest rates and trillions of dollars of stimulus spending. The G20 backed this approach, although individual countries had long decided that this was the way to go. As the second half of 2010 approaches, however, the recovery is looking far less solid, especially as governments are now struggling to rein in deficits.