The policy intentions pronounced at the recent G20 summit meeting went down well with the financial markets. It certainly stimulated an increase in risk appetite. The sherpas did a grand job working hard behind the scenes so that the summiteers could claim success - and they did so effusively, for maximum effect.

Happily, there were no spats between the Americans and Europeans, at least not in public view. And to everybody's relief, Nicolas Sarkozy, aka "little Napoleon", behaved himself and did not make a scene.

The final communiqué was well received because it conveyed real commitment and not just vacuous words. To some extent the seriousness of the global crisis, its pervasiveness and synchronicity seems to have concentrated minds and imposed cooperation. Of course, what everybody wants to see now is a follow through in terms of action.

It is absolutely certain that disagreements remain, notably between Europe and the US, over the optimal size of stimulus packages and the extent of proposed regulations. Meanwhile, prominent non-G7 members of the G20, such as the BRICs (Brazil, Russia, India and China) will still be clamouring for a more powerful role in international financial institutions, including the IMF.

There is a sense that a new world economic order is being ushered in. The two broad aspects of the changes underway are, firstly, a power shift at the expense of Europe and America and, secondly, a more tightly regulated global financial system.

It is evident to all that the G7 has now been superseded by the G20, whose composition is much more diverse. Clearly, the old boy's club was already an anachronism even before the current global crisis made it redundant.

It is well to note that power is never shared through an act of kindness but as a matter of necessity. Solutions to system-wide problems necessitate the cooperation of many countries, not just a few anointed ones. Still, we do not expect that all members of the expanded forum will have an equal weight in determining policy decisions. But prominent non-G7 members, such as China, Brazil and others, will have greater influence than before, and the old guard will no longer be able to impose solutions by diktat.

The changes are both economic and ideological. Obviously, the economic weight of emerging countries has been growing rapidly for many years. Also, the biggest crisis of the global economy since the Great Depression did not originate in the third world but in the centre of the developed world. In a country that always presented itself as a model of economic wisdom and rectitude that others should follow. Yet it failed miserably to live up to the image because of mismanagement, greed and stupidity.

The American ideology is in tatters, as the state intervenes massively to shore up a collapsing economic and financial system. And the defenders of the faith in the right-wing think-tanks (read propaganda institutions) are shown to be hypocrites and charlatans. Where were they when we needed reality-based market-oriented policies, not cheerleading for crony capitalism?

It is inevitable that there will be a good deal more regulation in the years ahead, in the US and across the world. This is heartening for the leaders of France and Germany, who have been pushing hard for tighter regulatory regimes and are suspicious of free-market economies. However, the truth of the matter is that the crisis in the US was not caused by the failure of free markets but by public policies that refused to allow markets to work efficiently.

Inappropriate fiscal and monetary polices introduced distortions in the economy that grew in magnitude. In addition, there was lack of oversight of the shadow banking sector that was increasing rapidly is size and importance.

The risk now is that governments will err on the side of overregulation, and this will reduce efficiency and stultify innovation. Already, in the financial services sector one notes greater risk aversion and self-imposed cautiousness, even without the sanction of tighter regulation by the authorities.

Combined with a more cautious approach adopted by industrial and commercial firms, as well as households, we may end up with lower productivity growth. A lack of animal spirits is just as bad for the economy as an excess.

Iraj Pouyandeh is a strategist and senior portfolio manager at LOM Asset Management. He manages the LOM Global Equity Fund. For more information on LOM Asset Management please visit www.lomam.com