A police officer conducts a security sweep in a conference room where G-20 heads of state will gather / AP
Leaders of the Group of Twenty (G20) meet on the
French Riviera this week, but their stay on the Cote d'Azur will be
anything but relaxed. The world economy is in deep trouble again,
plagued by sovereign debt crises in Europe and the United States,
persistent global imbalances and currency misalignments, low growth and
stubborn unemployment in developed countries, and inflationary pressures
in emerging economies. A year ago at Seoul, the G20 seemed finally
poised to transition from an emergency crisis committee to a global
economic steering group. The Cannes summit finds the G20 once again at
the heart of the maelstrom, in full crisis-management mode.
The narrowed Cannes agenda reflects this reality.
When France assumed the G20's rotating presidency a year ago, President
Nicolas Sarkozy proposed a sweeping summit agenda. Paris' ambitions
included an overhaul of the international monetary system and
comprehensive "global governance reform"--including enlargement of the
UN Security Council.
But ambition has yielded to sobriety. The Cannes
action plan will focus on two main goals: bolstering the recent eurozone
agreement, to ensure that the continental crisis does not spread
worldwide; and restoring momentum behind global growth.
The Cannes summit is the sixth since November 2008,
when George W. Bush first convened a meeting of G20 leaders in the wake
of the global credit crisis. The G20's record since then has been
checkered. Its zenith was the London Summit of April 2009, which averted
a 1930s-style depression by injecting $5 trillion (AFP)
into the global economy, including a trillion dollars in new IMF
resources. But subsequent summits in Pittsburgh, Toronto, and Seoul saw
this diverse coalition of mature and emerging economies begin to fray.
With the world economy once more in crisis, the
conditions may be ripe for greater G20 solidarity. But to be considered a
success, the summit must achieve six objectives:
Dampen--and Contain--the Crisis in the Eurozone.
After months of dithering, the seventeen eurozone governments have
sought to calm global financial markets by ratifying the terms of
the European Financial Stability Facility (EFSF) and the dimensions
of the Greek bailout. These actions are likely to have only a
temporary effect, however. The EFSF remains too small to cope with
sovereign debt crises in larger EU nations. It also does nothing to
correct a fundamental structural flaw: The eurozone is a monetary
union that leaves fiscal policy in national hands. The Cannes
summit provides U.S. President Barack Obama and other G20 leaders
an opportunity to escalate pressure (PDF)
on eurozone leaders. It also gives major surplus economies like
China and Brazil the chance to help contain a spillover of the
eurozone crisis, by using their massive capital resources to
bolster the International Monetary Fund's crisis-fighting resources.
Offer a Credible Plan for Macroeconomic Policy Coordination.
One of the biggest barriers to global growth is uncertainty about
the direction of economic policy in the world's most powerful
nations. To counter this impression of drift and disarray, summit
leaders must present a clear message on the steps they intend to
take (both individually and collectively) to advance the Framework for Strong, Sustainable, and Balanced Growth
(or Framework), which their governments endorsed in September
2009. That framework remains sound, but
follow-through--particularly on currency imbalances and sovereign
debt problems--has fallen far short. The G20 communiqué should provide
a menu of dramatic and credible policy options, based on the
reality that not all countries can export their way to growth.
Give the Mutual Assessment Process "Teeth."
At the 2009 Pittsburgh summit, G20 member states endorsed a mutual
assessment process (MAP), to evaluate the impact of member-state
policies in advancing the goals of the "Framework." Earlier this
year, G20 members agreed on indicators to assess macroeconomic
imbalances, as well as benchmarks against which such imbalances
could be measured. In theory, this marks a huge concession from
major countries like China and the United States, which have opened
themselves to external scrutiny, including by the IMF. In reality, as
former Mexican president Ernesto Zedillo observes,
G20 members have weakened the MAP by "deliberately" undercutting
the fund's watchdog function. Leaders can correct this flaw in
Cannes by endorsing the IMF's ability to "name and shame" G20
members, consistent with the surveillance mandate set out in
Article 4 of the Fund's Articles of Agreement
Deliver on Promised IMF Governance Reforms. The emergence of the G20
as the premier forum for global economic coordination reflects a
tremendous and ongoing shift in global economic power from
established to emerging countries. In 1990, the advanced market members
of the Organization for Economic Cooperation and Development (OECD)
accounted for some 60 percent of world GDP. By 2025, that figure
will be 30 percent--roughly equal to the shares of China, India,
Brazil, and Russia. Most international institutions, however, have
failed to adjust their voting and governance structures
accordingly. G20 members agreed to modest shifts in IMF quota
shares and executive board seats to benefit emerging-market
economies, but implementation has lagged. At Cannes, the G20 should
provide explicit details of these adjustments and endorse a firm
timetable for implementation.
Show Commitment to Financial Regulation.
Three-and-a-half years after the collapse of Lehman Brothers nearly
brought the global financial system to its knees, G20 nations have not
kept promises to create common prudential standards for major
cross-border financial institutions. Obvious dangers include both a
reprise of the Lehman fiasco and a "race to the bottom," as
inconsistent national rules encourage regulatory arbitrage. The
G20's major institutional innovation to address such risks, the
Financial Stability Board (FSB), remains under-resourced and wildly
understaffed (with about twenty employees)--mocking U.S. Treasury
Secretary Timothy Geithner's description of the FSB--alongside the WTO, IMF, and World Bank--as the "fourth pillar" of the Bretton Woods system. At Cannes, G20 leaders should commit
to giving the FSB the tools it needs--and to expanding FSB
membership well beyond G20 countries. The G20 must also take steps to
police the world's "shadow banking system" and strengthen global
supervision of risky derivatives markets.
Revive the Global Trade Agenda.
The failure of G20 leaders to throw their collective weight behind
multilateral trade liberalization has been a huge disappointment.
To be sure, G20 nations have held the line against
beggar-thy-neighbor protectionism. But international trade remains
in crisis, with a proliferation of trade-diverting bilateral,
regional, and "mini-lateral" agreements threatening to fragment the
global economy. Over five summits, G20 leaders have repeated their
intent to complete the moribund Doha development round of trade
negotiations--and done nothing to follow up. Rather than breed
cynicism with another ritual incantation of Doha, the Cannes
communiqué should focus on two immediate concrete steps: extend
duty-free access for exports from the least developed countries,
and redouble support for trade facilitation. The G20 leaders should
also signal their determination to revitalize multilateral trade
negotiations at the upcoming WTO ministerial meeting in December.
As with all G20 (and G8) summits, the final communiqué in Cannes will
touch on a variety of other worthy issues--from promoting food security
to adopting anti-corruption measures. But its success or failure will
be judged by whether the assembled leaders take the bold steps needed to
contain financial risks, revive global growth, and adapt old
institutions to new realities.
This article originally appeared at CFR.org, an Atlantic partner site.
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