UBC – Political Science
As soon as the show stopped in Cannes, the European and American press were quick to criticize its deficiencies: the inability of the G20 summit to solve the Euro crisis and a failure to commit a credible ‘financial bazooka’ to jolt financial markets back to a state of confidence and stability. Yet, at the roots of the Eurozone crisis: a Greek domestic political comedy; an Italian government without credibility; and a European Financial Stability Facility (EFSF) that was not yet ready to function. And even if all these components had experienced rapid movement in the days after the G20 (with the fall of both the Papandreou and Berlusconi governments within a week), other even more fundamental problems surfaced. Indeed, by late November, it became clear that the governance of the Euro — the lack of a credible Treasury and fiscal policy, the lack of a European-wide banking regulatory apparatus, and the severely restrictive European Central Bank (ECB) governance framework — were at the heart of the Eurozone crisis.
These issues were not for the G20 to solve, even though the Cannes summit had the misfortune of happening in the midst of the Euro crisis — and on European soil! Rather, the G20 is a forum that is able to: co-ordinate global economic policies; advance the building of credible global governance; and
match global financial markets through joint leadership among systematically important countries.
On these matters, the final results of the Cannes G20 incorporate a long list of significant and long-term advances, despite the lack of emphasis journalists placed on them. Even on the issue of the Euro crisis and the EFSF, it would be an error to suggest that emerging powers have abandoned Europe. For example, Japan declared that it stands ready to invest into the Fund, once precise modalities have been defined and credible mechanisms are in place. It is likely that China is in a similar position, with the additional requirement of a formal guarantee through the IMF.
There remains one great question that cannot be answered yet: even though the process of institutionalization of global governance just scored some important points and has solved cases of market failures, will this be enough to win the race against time that is now playing out with panicking financial markets and the unfolding global crisis? The G20 is gradually building necessary rules and rebalancing the relation between markets and governance, but it cannot produce the great firepower of significant cash on the table to stop a crisis as big as the euro crisis.
The sixth G20 Leader Summit had a different feel than previous summits. The first days of the meeting were an ominous beginning to the summit. After being heralded early in 2011 as the summit that would shape long-term global governance and tackle big issues, it was thrown into chaos by the announcement of a Greek referendum and by the growing Italian crisis. The entire working agenda of November 3rd was cast aside in order to make time for in depth brainstorming into the Euro crisis. The meeting with Bill Gates, author of the report on development and innovative financing, was canceled at the last minute, leaving Gates waiting in vain for President Sarkozy and the other leaders (after nearly being stopped at the security check points).
Key summits, such as the France-China and France-India summits were either canceled (India) or shortened (China). Delegates and leaders from non-European countries were stunned and outraged, feeling like bystanders in a regional show. In fact, both the Argentinian and the Russian presidents left Cannes on the night of the first day, missing November 4 entirely. Even the long-negotiated family photo of world leaders on November 3 was nearly marred by a conflict between the French organizers and Chinese President Hu Jintao, after President Sarkozy attempted to move Hu away from his front position mere moments before photo time. On the eve of Thursday night, one could wonder whether the G20 process was degenerating to a farce.
Yet, this painful summit eventually did turn around. By the evening dinner of day one, the Cameron Report on global governance focused leaders on the bigger pictures and led to a quality organizational discussion. G20 Leaders returned to the core G20 agenda on the second day and had efficient and valuable discussions, leading to the adoption or ratification of key decisions and prepared reports. During President Sarkozy’s November 4th press conference, the atmosphere was positive and proactive. The actual advances in global governance were significant and meaningful. Sarkozy emphasized the willingness of key leaders, specifically China and America, to cooperate on the coordination of the global economy. Interestingly, President Obama’s own conference was much more subdued and restrained, almost entirely focused on domestic American politics. President Obama did not echo the words of his French counterpart regarding the advances in global governance. The Chinese delegation avoided giving a press conference all together, although the Chinese government issued a very positive statement. Thus, after a thrilling roller coaster ride, the G20 did deliver significant results. How can we prioritize and evaluate these results? Is the G20 continuing to fulfill its mission?
On the whole, our answer is a qualified, “yes”. Among the outputs of the Cannes G20 Leaders Summit, several key results can be highlighted. In fact, it could be argued that seen in a pre-2008 and pre-crisis light, these results would have been heralded as breakthroughs. The great powers have shifted and have also reached comprises. President Obama has been a willing summit partner and has played a positive role on several issues of governance and regulation, even though he would not publicly claim credit for those results. The same goes for China and its current leader, Hu Jintao.
The bulk of large institutional advances were the result of the year long process of interim meetings, particularly between the G20 finance ministers. For example, the action plan on food price volatility was reached as early as June 2011 and the Cannes action plan for growth mostly came together in September and mid-October. Key decisions on the “management of capital flows” were achieved on October 13-14th. After a very difficult tripolar negotiation process between European countries, the US (and UK), and Brazil, an agreement was reached. The same goes for negotiations on the IMF. Only a handful of decisions, such as the choice of rotating presidencies and the final wording on the Tobin tax or on G20 institutionalization, were made on November 4th at the summit. But they still mattered.
As we look back, what were the most significant results coming out of this G20 Leaders Summit?
The most significant outcome of the 2011 Summit is that the G20 process has continued to function. It has approved a framework for ‘systemically important’ countries to work together, engage in mutual bargaining and mutual commitments. The Summit has served as a focal point for very important debates that could not have taken place without the G20. It has become the cornerstone for the dialogue between the US, Europe, and China. In fact, the G20 Leaders Summit has made China more of a stakeholder in the global economic system and global institutions. The significant excitement of Chinese elites for the G20 is a testimony to this!
It is striking that the Cannes Action Plan for Growth and Jobs, together with the related Annex (commitments made by G20 countries) is filled with important moves, some of which were the results of genuine negotiations between big powers. On this score, we can cite the Chinese commitments toward convertibility of the renminbi (RMB) and toward a significant reduction of its current account surplus, but with vague targets stretching over several years. China takes such plans and targets very seriously and the Chinese commitments are matched by domestic action plans embedded in its 12th 5-year plan. In fact, both Presidents Sarkozy and Obama praised Chinese flexibility at the end of the Cannes Summit. Other commitments are more national government priorities; yet, some governments find it helpful to use a platform such as the G20 to bind their own parliaments and defuse vested interest groups. A key example of this is Japan. Almost unexpectedly, the Noda government committed at Cannes to raise the consumption tax from 5% to 10% before 2015 and to pass the related bill in the Diet before March 2011, even though there is no consensus for this within the Cabinet or the Democratic Party of Japan.4 Bound by this international agreement, the Cabinet introduced a bill to achieve exactly that on December 30, 2011. These commitments all matter, given the reinforced surveillance by the IMF that the instruction of the G20 Leaders Summit.
G20 Leaders have also made a formal commitment to significantly increase IMF resources. Even though details could not be agreed at Cannes, given the related struggle for voice and power, leaders made a clear commitment to announce the amounts in February 2012. Current signs indicate that discussions are on track.
With regards to the core G20 Leaders Summit agenda of financial regulations, significant progress has been made. Indeed, the G20 agreed to elevate the Financial Stability Board (FSB) to the level of legal entity, a move that is akin to creating an international financial organization. In addition, by nominating Mark Carney, the Governor of the Bank of Canada, as the new head of the FSB, the G20 chose a highly competent and independent leader. This should bode well for the credibility of the FSB.
The G20 Leaders made a significant new commitment with respect to the monitoring and regulation of derivatives (both CDS and commodity derivatives). The Cannes G20 also put further pressure on at least 11 tax havens, including Switzerland and Lichtenstein, a move that infuriated the Swiss public.
The topic of the Tobin tax — a transactions tax — also occupied significant time at Cannes. Even though, predictably, there is no formal agreement to implement such a tax on global financial transactions for all G20 countries, half of G20 Leaders backed the tax (including Brazil and Argentina, who moved during the summit). In addition, Japan changed its position to one of support in principle, pending concrete details. The Bill Gates Report also indicated a new source of support for the idea. Even though the US, the UK, and Canada remain strongly opposed, they agreed to let the issue stand as a worthy one in the final communiqué.
Regarding the Euro crisis, even though it was clearly a problem that was too large for the G20 to tackle, the intense discussions at the G20 and on the margins of the G20 have allowed leaders to cut some Gordian knots and to pave the way for the departure the prime ministers of Greece and Italy, Papandreou and Berlusconi. The G20 brought necessary impetus into the Euro process, even though the end point remains unknown.
Finally, one should note the creative decisions reached by G20 Leaders on their last day regarding host countries. With Mexico already decided for 2012, leaders focused their attention on 2013. A consensus arose that Russia should be in charge, given the usual regional balance followed within the pre-2008 G20 process at the finance minister level. Yet, Turkey (the other contender) was furious and blocked the consensus. This led to an interesting 3-year compromise with Russia in 2013, Australia in 2014 (as expected), and Turkey in 2015 (a surprise). Most interestingly, the G20 Leaders supported the embryo of the regional sub-groups (institutionalizing budding practices within the pre-2008 G20) by tasking the four East Asian countries with choosing one of them for the 2016 presidency. In so doing, the G20 may play an outside role as facilitator in East Asian regionalism. On that score, it is noteworthy that Japan and China have had two significant bilateral summits on the margins of the ASEAN summit in the past mid-November and late December meetings which have yielded commitments to cooperate on the Euro bailout process at the IMF and to increase transactions in Yen and RMB.
In conclusion, while it is easy for journalists and experts to emphasize what the G20 could not accomplish – namely, solve the Euro crisis or global imbalances – it is also too easy to overlook its very significant contributions to global economic governance. The results achieved in 2011, culminating with the Cannes declaration, represent important regulatory advances. Yet, as 2012 promises to be a critical year for the survival of the Euro and for the future of the global economy, the challenge for the G20 Leaders is to step up their game and alter the default inclination of key states to run for the exits. The Leaders need to avoid harmful short-term national interests calculations. The stakes could not be higher.
This memo incorporates some ideas published in French on the Telos site: http://www.telos-eu.com/fr/article/g20-sarkozy-a-marque-des-points-la-gouvernance-m
For the full text, see http://www.number10.gov.uk/wp-content/uploads/2011/11/Governance-for-growth.pdf
For the list of all documents and results of the summit, see http://www.g20-g8.com/g8-g20/g20/english/the-2011-summit/declarations-and-reports/g20-cannes-summit-declarations-and-reports.1553.html.
http://www.mofa.go.jp/policy/economy/g20_summit/2011/action_plan.html. The exact sentence in the communiqué reads: “Japan commits to implementing the ‘Definite Plan for the Comprehensive Reform of Social Security and Tax’ which sets out policies including the gradual increase in the consumption tax to 10% by the middle of this decade and to submitting implementing legislation by the end of FY2011 to realize these policies, in order to meet its Toronto commitment.”