Blog Post

The G20 should rise to the challenge (but probably won’t)

Everybody knows the euro area is at a critical juncture. A financial reform program is being prepared and should be on the table of the European Council on June 28-29. If things go well (read: if financial markets are reassured that Europe will eventually sort out its financial mess) this should not only redefine the […]

By: Date: June 12, 2012 Topic: Global Economics & Governance

Everybody knows the euro area is at a critical juncture. A financial reform program is being prepared and should be on the table of the European Council on June 28-29. If things go well (read: if financial markets are reassured that Europe will eventually sort out its financial mess) this should not only redefine the institutional landscape of the zone for many years, but also lift some of the uncertainty overshadowing the global economy. Not by coincidence, President Obama has issued urgent calls for action to Europeans leaders, followed shortly after by the British Chancellor of the Exchequer and by the IMF Managing Director. The decision by Spain to seek EU financial assistance increases the urgency of reform, because it implies that the resources available for new rescues are getting thinner. Adding to the pregnancy of the moment, the outcome of the second round of Greek elections, on June 17, will decide Greece’s future as eurozone member, with all the contagion risks within and outside the area that any prospect of exit entails.

In view of all this, the G20 leaders convening in Los Cabos on June 18 and 19 would have a perfectly timed opportunity to do three things:

1.      Review Europe’s financial reform plans as they shape up, providing advice and exercising peer encouragement to action;

2.      Express readiness to provide support, within the IMF, to stabilise euro area financial markets while the “roadmap” is implemented (this support should naturally come from cash-rich emerging nations, with explicitly announced commitments);

3.      Examine the need of coordinating macroeconomic policies to avoid that any spillover from the European crisis adds danger to the flimsy global recovery.

All three things fall within the remit of the G20 (“the principal forum of global governance”) but unfortunately none of them will happen. On the first point, Europe has already expressed its intention to focus the summit on growth and jobs; the deliverable should foreseeably be yet another “plan” without specific deadlines or commitments, along the lines of previous summit discussions. Growth and jobs are obviously fine in principle, but adopting such broad focus is likely to divert attention from the immediate challenges and even more from the actions to be undertaken. It is a pity, because Europe, while being ultimately responsible for its own actions, badly needs to explain itself and convince the global community that it is doing its best to resolve its problems. And it may, who knows, wish to receive further external assistance going forward (the fact that the IMF will not contribute to financing Spain this time does not necessarily mark the end of its active financial involvement in Europe).

Here comes the second point – financial contributions. It would be good to understand what to expect exactly after the recent meetings in Washington DC. On April 20, after the G20 Ministerial, the IMF announced the intention of its membership to increase the institution’s lending power by at least 430 million US$, to almost twice the existing amount. Reading that statement carefully, however, one discovers that almost half of that commitment was coming from Europe itself, and large part of the rest (from emerging nations specifically; the US had already called itself out) was conditional on internal consultations yet to be undertaken (the table in the press statement, unprecedented fact in IMF history, does not add up to the total!). Are these nations now ready to confirm and possibly increase their pledges? What is the effective additional contribution the IMF will be able to count on in assisting Europe, if necessary, especially in net terms? While the Los Cabos meeting should at least clarify this, an explicit statement of willingness to use these resources to assist Europe in its institutional transition would be very helpful to reassure financial markets, but is unlikely to come.

The last point – global recovery support – is perhaps the trickiest one. The G20 has given itself, since 2010, a framework for peer review and coordination of macro-policies, the socalled “mutual assessment process” or MAP (see a description here). The MAP should now be allowed to work. The problem is that global economic conditions have changed since the MAP was set up, or even since Cannes; external imbalances among large currency areas have shrunk and are now within safe bounds, partly as a result of movements in the patterns of global demand partly following exchange rate changes in the right direction. In the meantime new risks have emerged, stemming from increased oil prices and from new bouts of financial instability, in Europe specifically. The MAP should adapt to these changes under the guidance of the IMF. However, the commitment of the IMF in performing its role as “arbiter” of the MAP, and perhaps towards the whole G20 process, has been, so far, half-hearted.

In the background, the fundamental problem of the G20 at the moment is that, after the successes of 2008 and 2009, the process has lost steam due to lack of ownership and leadership. The US and UK, originally the main drivers, have lately been conspicuously detached. The emerging countries, in spite of the generous efforts by Koreans during their turn in the chair, have on the whole been incapable (or unwilling) to pursue the historical opportunity to participate as pears in the global economic governance game. Europe has been, and remains, mainly concentrated on its own problems, believing – wrongly – that they will remain confined within its borders.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.


Warning: Invalid argument supplied for foreach() in /home/bruegelo/public_html/wp-content/themes/bruegel/content.php on line 449
View comments
Read article More on this topic More by this author

Opinion

Immigration: The doors of perception

Surveys show that people systematically overestimate the share of foreign-born citizens among resident populations. Aligning people's perceptions with reality is vital to the betterment of public debate and proposed policies.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: December 12, 2018
Read article More by this author

Opinion

The UN climate conference in Katowice: A message from the European capital of coal

Following the COP24 climate talks in Poland, Simone Tagliapietra reviews the arguments for and challenges to decarbonisation.

By: Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: December 12, 2018
Read article More by this author

Blog Post

Economic policy challenges in Southern and Eastern Mediterranean

For a long time, southern and eastern Mediterranean countries struggled with serious socio-economic challenges and dysfunctional economic systems and policies. Marek Dabrowski reviews the challenges the region has to face to get out of a low growth trap.

By: Marek Dabrowski Topic: Global Economics & Governance Date: December 11, 2018
Read article Download PDF More by this author

External Publication

A new strategy for EU-Turkey energy cooperation

Cooperation over energy and climate issues could be one of the components of the EU-Turkey Positive Agenda. Simone Tagliapietra proposes a new strategy for EU-Turkey energy cooperation, which envisions a shift of focus from gas and electricity to fields such as renewables and nuclear energy.

By: Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: December 5, 2018
Read article More on this topic More by this author

Opinion

The great macro divergence

Global growth is expected to continue in 2019 and 2020, albeit at a slower pace. Forecasters are notoriously bad, however, at spotting macroeconomic turning points and the road ahead is hard to read. Potential obstacles abound.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: December 5, 2018
Read article More on this topic

Blog Post

Youth unemployment: Common problem, different solutions?

Youth unemployment is a major obstacle to the Middle East and North Africa (MENA) region’s human and economic development. In this blog post, Uri Dadush and Maria Demertzis go into the factors behind the its surge.

By: Uri Dadush and Maria Demertzis Topic: Global Economics & Governance Date: November 29, 2018
Read article More by this author

Opinion

The world deserves a more effective G20

As the presidency shifts from Argentina to Japan at Buenos Aires (and then to Saudi Arabia) it is worth asking why the G20 has endured this long and what it needs to remain relevant in a dramatically changed world.

By: Suman Bery Topic: Finance & Financial Regulation, Global Economics & Governance Date: November 29, 2018
Read article

Opinion

Buenos Aires summit is a good place to start fighting back against destructive unilateralism

Ten years after the G20 proved its effectiveness in dealing with the global financial crisis, it needs to step up its efforts to overcome a political crisis, fuelled by destructive unilateralism, that threatens international governance on trade, investment and tax.

By: Uri Dadush, Axel Berger, Andreas Freytag, Simon J Evenett, Christian von Haldenwang, Ricardo Meléndez-Ortiz, Raul Ochoa, Agustin Redonda and Karl P Sauvant Topic: Finance & Financial Regulation, Global Economics & Governance Date: November 28, 2018
Read article More on this topic More by this author

Podcast

Podcast

Backstage: Shared prosperity for the EU and north Africa

Bruegel's director Guntram Wolff looks at north Africa's economic growth in the light of the region's trade agreements with the EU, welcoming Karim El Aynaoui and Uri Dadush to the Backstage series on 'The Sound of Economics'.

By: The Sound of Economics Topic: Global Economics & Governance Date: November 27, 2018
Read article Download PDF More on this topic

Policy Contribution

Assessing the European Union’s North Africa trade agreements

In this Policy Contribution, the authors provide an economic assessment of the trade agreements between the EU and North Africa. They argue that the common view of the agreements is overly negative, and point to policy conclusions that could increase regional integration.

By: Uri Dadush and Yana Myachenkova Topic: Global Economics & Governance Date: November 26, 2018
Read article More on this topic More by this author

Podcast

Podcast

Deep Focus: The G20 in a changing world order

In this episode of Deep Focus, Bruegel fellow Suman Bery joins Sean Gibson to elaborate on his recent Policy Contribution on the G20's performance over the past decade, and the forum's future prospects.

By: The Sound of Economics Topic: Global Economics & Governance Date: November 20, 2018
Read article Download PDF More on this topic More by this author

Policy Contribution

The G20 turns ten: what’s past is prologue

This Policy Contribution assesses the performance of the G20 since its first summit held in November 2008 to understand what could lie ahead for the institution.

By: Suman Bery Topic: Global Economics & Governance Date: November 15, 2018
Load more posts