Home .Governing globalization G20 and the crisis
G20 and the crisis
Sunday, 14 November 2010 05:21

One of the few positive outcomes of the global financial crisis was the shift in global economic summitry from the G7 formula to the G20.  But as quickly as the G20 star rose, it is fading again. 

 

Countries are reluctant to work together unless there is a great fire to put out.

 

The Group of Seven (G7) kicked off in 1975 as a French initiative involving at the time governments of six leading Western countries: France, Germany, Italy, Japan, UK and US.  The challenge of responding to the 1973 oil price shock was the key motivator for bringing these countries together.  In 1976, Canada joined the group making it the G7.  In 1997, the group added Russia thus becoming the G8, although Russia was never involved in finance issues, which were still handled at the level of the G7.

 

Over time, the G7/G8 lost credibility and legitimacy as major emerging economies arrived on the scene.  Various formulae were tried for inviting these countries along.  Most recently, the G8 had a dialogue with the so-called G5 of Brazil, China, India, Mexico, and South Africa.  But the days were always numbered for this anachronistic formula.  Did it still make sense to keep splitting the world on this basis?

 

When reckless policies by the US and other Western countries caused the global financial crisis, the G8 members were forced to eat humble pie and sit shoulder-to-shoulder with the leaders of the emerging world and find a way out of the mess.  So the G20 formula was quickly hauled into action for a leaders’ summit in Washington following the Lehman shock in 2008.  The G20 had been created after the 1997 Asian financial crisis as a group for finance ministers and central bank governors.  The G20 members are: Argentina, Australia, Brazil, Canada, China, France, European Union, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Korea, Turkey, United Kingdom and United States.

 

In short, the structures of global governance were now being adapted to reflect the new global economic power structure.  The G20 countries account for 85 per cent of world GDP, 80 per cent of world trade and two-thirds of world population. 

 

The G20 has now had several leaders’ summit meetings – Washington in 2008, London and Pittsburgh in 2009, Toronto earlier this year, and Seoul these past couple of days.  The emerging economy members of the G20 are visibly excited to be part of the group whose leaders have “designated the G-20 to be the premier forum for our international economic cooperation” (G20 Leaders’ Statement, the Pittsburgh Summit, September 24-25, 2009).  But the G7/G8 had many problems in addition to the composition of its membership.  And these very same problems are now surfacing in the G20 process.

 

In its original conception, the G7 was a place for doing serious business.  Over the years, however, it developed into a giant public relations bonanza.  This was again evident in Seoul where there was great celebration for it being the first emerging economy to host a G20 summit.

 

The G7 and the G20 are not at all organizations with solid administrative structures.  Each year, the host country organizes the meetings and sets the agenda.  This means that issues can come and go, according to the whims of the chairing country.  Korea put development issues on the table this year.  In 2011, France is planning to tackle the role of the dollar as an international reserve currency (the French love anything that smacks of anti-Americanism).  Follow-up work is mandated to various international organizations like the United Nations, International Monetary Fund, World Bank, World Trade Organization and the Organization for Economic Cooperation and Development.  But implementation of these mandates is always patchy.

 

Perhaps the biggest problem is that the G7 always made big commitments to solve international issues, but would very often not follow through.  Classic examples are their commitments to: conclude the Doha round of trade talks, which have been dragging on for almost a decade; increase development assistance; seriously address climate change; and solve the global imbalances which have been destabilizing the world economy for almost a decade.

 

But in groups like the G7 or G20 it is still possible to have serious discussions, unlike unwieldy forums like the United Nations with its almost 200 members.  There are always however many countries that complain about their exclusion, and try to make a case for a special invitation.  As President Obama reportedly once said, “What I've noticed is everybody wants the smallest possible group, the smallest possible organization, that includes them. So, if they're the 21st largest nation in the world, they want the G-21, and think it's highly unfair if they have been cut out".

 

The first G20 leaders’ summit made a promising start.  They had to, the end of the world was nigh, with a new great depression on the horizon.  Well coordinated stimulus packages saved the situation, even if they also sewed the seeds for Europe’s sovereign debt crisis.  The US, Europe and Japan all experienced negative growth in 2009.  But things could have been worse.  Unemployment is still high, but our economies are growing again.  Thanks in part to the G20, protectionism has been substantially held at bay. 

 

But financial sector regulatory reform has been more difficult.  A lot of work has been done, and reforms have been made.  The Financial Stability Forum was transformed into a Financial Stability Board.  But fundamental differences remain between the continental Europeans on the one hand, and the US and UK on the other.  And now that the US and UK are recovering, the pressure to work together is off, and in the case of the US it is more difficult with the Republicans back in the Congress.

 

In the G20 finance ministers’ meetings a few weeks back, it was also agreed to give more voting rights to emerging economies, and for Europe to give up some of its excessive seats.

 

Fast-forward to last week’s leaders’ summit in Seoul.  Issues at the top of the agenda were the global imbalances and exchange rates (especially between the US and China), and the so-called Mutual Assessment Process (MAP) to promote external stability.

 

What was the result?

 

The main outcome was commitments on “moving toward more market-determined exchange rate systems” (read China), being “vigilant against excess volatility and disorderly movements in exchange rates” (read US), and agreeing to strengthen multilateral cooperation "to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels". 

 

Sounds promising? Not really, because the problem of global imbalances has pushed off to a study group which will make "an assessment of their nature and the root causes of impediments, of persistently large imbalances”.  This assessment will be based on “indicative guidelines” which still have to be agreed by Finance Ministers and Central Bank Governors!  The G20 leaders also called on the IMF “to provide an assessment …on the progress toward external sustainability and the consistency of fiscal, monetary, financial sector, structural, exchange rate and other policies”.

 

The G20 is well aware of the costs of inaction on global imbalances.  As they also said, “Uneven growth and widening imbalances are fuelling the temptation to diverge from global solutions into uncoordinated actions … (which) … will only lead to worse outcomes for all.”  So while the G20 “Framework Working Group” and the IMF are doing their studies, the US and China will continue throwing darts at each other. 

 

The G20 also talked about trade (Doha commitments again!), protectionism (we will resist), climate change (we are committed to fight it), corruption (we will tackle it) and global marine environment (we will safeguard it).  “What we promise, we will deliver”, was the G20 war cry.  Don’t believe it for a minute!    

 

The G20 welcomed the Seoul G20 Business Summit – please notice that there is no reference to trade unions (many are still in jail in Korea) or to civil society (they were in the streets). 

 

And naturally, they look forward to their next meeting in 2011 in France, and in 2012 in Mexico.  Economic summitry is fun after all!!

 

References:

G20 Information Centre

http://www.g20.utoronto.ca/

 


rssfeed
Email Drucken Favoriten Twitter Facebook Myspace blogger google Yahoo
 

Copyright © 2011 Mr Globalization - Tackling the paradoxes of globalisation. All Rights Reserved.

Nicaragua.jpg
Kuwait.jpg
Czech_Republic.jpg
Denmark.jpg
North_Korea].jpg
Morocco.jpg
Papua_New_Guinea.jpg
Guyana.jpg
Pakistan.jpg
Kiribati.jpg
Congo.jpg
Yemen.jpg
Nigeria.jpg
Mali.jpg
Georgia.jpg
Spain.jpg
Solomon_Islands.jpg
Bolivia.jpg
Iran.jpg
Equatorial_Guinea.jpg