By Jaya Ramachandran
As the heads of world’s major economies, comprising the Group of 20 (G20), prepare to meet in Los Cabos in Mexico on June 18-19, the widely held view is that high expectations placed on them have been belied. The G20 leaders – representing about two-thirds of the planet’s population and more than 85 percent of the global economy – have since their first summit in Washington in 2008 agreed on financial reforms that did not go deep enough, came too slow and too late, and were above all ineffective.
Also the geo-political reconfiguration of the international system has been limiting considerably limiting the G20’s impact. The relative weakening of the U.S., the decline of the 27-nation European Union (EU) and the rise of new powers make the G20 an arena in the struggle over status in the global power hierarchy. Besides, several emerging countries are seeking alternatives or complementary structures to the G20, such as the BRICS (Brazil, Russia, India, China and South Africa) or the Shanghai Cooperation Organisation (SCO).
“It is an irony of history that initially the G20 had been established after the Asian financial crisis of 1997/98 as a kind of educational project – officially called dialogue – for emerging countries by the G7. However, the worst international financial crisis since the Great Depression had its epicentre in the U.S., and it turned out that the self-nominated ‘teachers’ were at least as ignorant as their supposed ‘students’, says Peter Wahl, a researcher at WEED, a German policy institute.
Wahl points out in a discussion paper titled ‘The G20 – Overestimated and Underperforming’: “Bankers, the State Secretaries of Finance, Reserve Bank Presidents, and thousands of Harvard economists – who had behaved like the masters of the universe – realized they did not control the system they were running and legitimising, when Goldman Sachs started to speculate against its on clients, the system of collateralisation started to unravel and the real estate bubble burst. All of a sudden they stood there in the Emperor’s New Clothes.”
He adds: Many an analysis of the G20 by Western economists tends to leave out an important aspect. But both in the perception of the elites and the people in those parts of the world, who had been colonized, oppressed, exploited, dominated and humiliated for centuries by Europeans and their North American offspring this crisis had a very important psychological and political impact on feelings of inferiority, which had persisted for hundreds of years especially in emerging economies but also in other developing countries.
In that sense the crisis confirms, what always is attributed to crises: they serve as a catalyst for change, although, this time the new developments might have been neither expected and neither welcomed by the West.
Viewed from that perspective, the G20 is indeed more than just a new structure in the system of global governance. It symbolises a historic turn marking the beginning of the end of 500 years of Western dominance.
According to Wahl, under the impact of the crisis the first three summits in Washington (2008), London (2009) and Pittsburgh (September 2009) provided some insight into the reasons of the crash. In particular the Pittsburgh summit, which was the first to be prepared by the Barrack Obama administration, used some new language, abandoning much of the neo-liberal talk, which had dominated the summits of G8 (comprising seven major western economies and Russia) since the eighties of the twentieth century.
This gave rise to expectations that the G20 might in fact represent a new quality of global governance.
“The summits gave impulses for the management of the financial crisis in its first stage (2008-2009), which after all was to a certain extent successful. Because unlike in the Great Depression of the 1929 there was a concerted anti-cyclical reaction, which used two main instruments: rescue packages for the banking sector and stimulus programmes for the real economy,” Wahl argues.
He writes: Many details of these measures can rightly be criticised. They did not suffice and primarily served the interests of the financial industry and investors. Often they were socially unbalanced or gave away the chance for structural changes as in the case of the old-fashioned stimulus programmes for the automobile industry. But they did not make the fundamental mistake of 1929, to leave the solution of the crisis to the markets. This made a fast recovery in the emerging economies possible and gave positive impulses to the world economy.
But at the Toronto summit (June 2010) and in Seoul (November 2010), the momentum started to slow down. The illusion emerged, that the crisis would be over soon and the world would return to business as usual. The Seoul summit was in addition characterised by strong controversies about the exit strategies with regard to the rescue and stimulus policies and how to deal with the global imbalances. The Euro Crisis which had broken out in March before with an almost default of Greece had been completely underestimated.
In Cannes (November 2011) the crisis was back with a vengeance and Greece topped the agenda. But again the controversy over an adequate strategy for the EU crisis continued. The G20 failed to find a consensus.
The Euro Crisis, which has sharpened, will be the centrepiece of the G20 summit in Los Cabos, as German Chancellor Angela Merkel admitted in a policy statement to the Bundestag (federal parliament) on June 14.
Mexican President he leaders of the United States, China, Japan, Germany, France, Brazil, the United Kingdom, Italy, Russia, Canada, India, Spain, Australia, Korea, Indonesia, Turkey, Argentina, South Africa, Colombia, Chile, Ethiopia, Benin and Cambodia will attend the Summit, during which they will discuss the main challenges of the global economy and define actions to restore economic stability and growth.
As G20 presidency Mexico has established a set of priorities, which it wants the leaders of the United States, China, Japan, Germany, France, Brazil, the United Kingdom, Italy, Russia, Canada, India, Spain, Australia, Korea, Indonesia, Turkey, Argentina, South Africa, Colombia and Chile to discuss.
President Felipe Calderón said: “The issues Mexico will seek to promote include strengthening the international financial architecture and regulation; public policy options to determine the causes and reduce food price volatility; policies to promote green growth and greater investment in scientific and agricultural technology and research. He added that the Mexican G20 Presidency will maintain an inclusive approach, which will deal with the concerns of non-member countries of the Group and various actors in the private sector and civil society.”