Six questions for G-20 leaders

LONDON (Fortune) -- French President Nicolas Sarkozy is threatening to walk if there's no agreement on new and more stringent international financial regulation. German Chancellor Angela Merkel may throw a fit of her own if other countries keep insisting that the Germans have room for a bigger economic stimulus package. The Russians and Chinese want to get some control over the International Monetary Fund, and if there's one issue on which there is a wide consensus, it's that American corporate greed and negligent financial oversight is to blame for all the mess.

The G-20 meeting taking place in London Thursday has rapidly turned into a viper's nest of grievances -- and a potential minefield for President Barack Obama on his first big international foray. Behind the scenes, officials are scurrying to find points of agreement, and are sure to play them up in the final communiqué.

Barring a public shouting match, the leaders are likely to insist that their gathering was both upbeat and harmonious. But what's really going to happen? Who will emerge as winners and losers? And how will the world be able to judge whether the brief, one-day confab was a historic turning point or an abject failure?

Here's a quick guide to the meeting. For the summit to be considered a success, at least two or three of these points will need to be resolved.

Four working groups have been preparing for a discussion of the International Monetary Fund, and their efforts are the most likely to bear fruit in London. The areas they looked at are: financial regulation and transparency; international cooperation and the integrity of financial markets, and a reform of the IMF, World Bank and other multilateral lending agencies.

Good progress here. Already, they have agreed, at least in principle, on a number of highly technical issues such as the need for an international rethink of capital requirements for banks and ways to reduce risk in finance, according to people involved in the discussions. So if nothing else, there will be a few bits and pieces to crow about in the final statement. The problem for the G-20 leaders is that these developments are either old news or hard to explain to a lay public. Reforming the IMF and its sister agencies may be a little easier, but that's a potential political minefield. There's widespread agreement that the IMF could play a bigger coordinating role in the world economy, and the meeting looks set to announce a big boost to its resources, doubling or even tripling its $250 billion of capital. But China, Russia, India and Brazil argue that the IMF can only play a bigger role if its structure is changed to better represent the world's powers.

In other words, they want to have a much greater say in how the IMF and other international agencies are governed. For that to happen, President Obama may be under pressure to give up the U.S. historical prerogative of picking the head of the World Bank. As well, the Europeans would need to relinquish their lock on the nomination of the IMF top job. If there is a deal about reforming the IMF, it'll be around the table in London and it could be the most exciting thing to come out of the meeting. If there isn't, expect a lot of shouting from the Russians and Chinese.

The summit is taking place against a backdrop of a tanking world economy. This week, the Organization of Economic Cooperation and Development came out with the gloomiest report to date, foreseeing that GDP would drop this year by 4% in the U.S., by 4.1% in Europe and by 6.6% in Japan, as unemployment soars.

Most big economies have introduced stimulus packages, and a few weeks ago there was some hope in national capitals that these spending plans could be coordinated and reinforced at the London meeting.

In the meantime a clear divide has emerged between the Europeans -- especially the Germans -- who say they have done enough, and the rest of the G-20 members, who say that Europe could pull its weight some more.

Officials preparing the meeting say they doubt that there will be any tradeoff between bigger economic stimulus and greater financial market regulation. But if German Chancellor Merkel does agree to a bigger spending boost, it would likely be greeted with delight by the U.S. and others. Far more likely, however, is a restatement of how much every nation has done, both in terms of fiscal stimulus and monetary easing.

France and Germany are still miffed that their calls for stricter financial regulation, made a couple of years ago at meetings of the G-8, were dismissed out of hand by Washington and London. Now they want revenge. They're trying to force regulation of hedge funds and other non-traditional financial markets onto the agenda. And they both advocate a far more concerted global approach to regulation of financial markets.

So far, there has been polite pushback from the U.S. and the U.K. But Sarkozy is famous in France for grandstanding, and if he's feeling bad-tempered, he might try to pick a fight.

Protectionism is sure to be high on the agenda, and the leaders will doubtless make highfalutin declarations about the need to avoid it. The problem is that nation after nation is putting in place new measures on a daily basis, even while they profess to being shocked -- shocked! -- by what others are doing. The latest example: U.S. bailout money for Detroit, which has German industrialists fuming about unfair competition. Some big-time damage control could be needed to head off a nasty spat.

The other potential flashpoint is the dollar, and U.S. monetary policy. China and Russia in particular have been muttering darkly in recent weeks about the importance of having a stable international reserve currency. In other words, they're fed up with the dollar's swings -- and that they have no influence over it.

It's hard to see an alternative to the greenback out there, and President Obama is unlikely to hand over U.S. monetary policy to Moscow and Beijing. But unless there's some conciliatory language in the final communiqué about the need to maintain a stable reserve currency, watch for some fireworks that could impact foreign exchange markets.

There is one issue on which every person around the table can agree: how undeserving bankers are and how important it is for their compensation and out-of-control bonuses to be reined in. Technocrats preparing the meeting have drafted broad statements outlining ways to bring corporate pay back down from the stratosphere. At the very least, that will enable the delegates to say they have reached agreement on an issue that will play well to the public back home.