Unfortunately, seeing a need to act and being able to act—especially in unison—are two different things. The policies required by each country must be passed by domestic legislatures and (even in China’s case) sold to domestic interests. Used intelligently, a G-8-wide or broader agreement could ease that political burden. It could tell the world, “We’re all in this together, each of us playing a part.” The imprimatur of an international resolution and the perception of foreign “concessions” can be useful crutches for political action.
The leaders who will gather in Saint Petersburg seem to understand this too. In April their finance ministers and central-bank governors agreed to a new mandate for the International Monetary Fund, asking it to study the imbalance (as if it had not already been doing so: the fund issued strong warnings about all of this four years ago) and publish recommendations for an internationally coordinated approach to resolving it.
Up to a point, this is encouraging. But the IMF has no power to force these governments to act. They are not borrowing from the IMF, unlike the small, poor, near-bankrupt countries that it is accustomed to supervising. It has no leverage except persuasion—and if it has a care for its own continued existence, it had better use even that with extreme circumspection. (What would Congress make of the IMF’s appearing to dictate American fiscal policy?)
The IMF might serve as a useful prod, but real leadership—starting with strong public statements of support and commitment—must come from the crippled heads of state in Saint Petersburg. Unfortunately, the politics of weakness often tugs in another, less productive direction—especially before a crisis actually boils over. It will be tempting for these leaders to say, “This problem is mainly China’s fault, and Europe’s fault. The IMF should force them to act.” Blaming foreigners is a time-tested political strategy. If that strategy is invoked, the IMF, the summit, or whatever mode of international cooperation is adopted may actually slow reforms further.
So here’s the key question, which the summit will at least begin to answer: After all of the political and economic calculations have been done, what do enfeebled governments really see—an opportunity to act more effectively, or just somebody else to blame?