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G20 Summit Overshadowed by Euro Crisis

Authors: James A. Haley, Director, Global Economy Program, Center for International Governance Innovation Andres Rozental, President, Mexican Council on Foreign Relations Lars Brozus, Senior Associate, EU External Relations, German Institute for International and Security Affairs Maria Monica Wihardja, Center for Strategic and International Studies
June 14, 2012

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Editor's note: This roundup is a new monthly feature of the Council of Councils initiative, gathering opinions from global experts on major international developments.

The G20 leaders' summit in Los Cabos, Mexico, on June 18-19 will likely be dominated by concerns that the eurozone sovereign debt crisis could plunge the fragile global economy back into recession, though other agenda items-- bolstering the group's relevance, stabilization and structural reforms, strengthening financial regulation, and more--will also command attention.

The most worrying issue facing the G20 is the "deterioration in eurozone growth prospects and the heightened risk of a European banking failure," says James A. Haley of the Ontario-based Center for International Governance Innovation. However, Andrés Rozental, founding president of the Mexico City-based Mexican Council on Foreign Relations, says the summit will still be able to address issues such as economic stabilization, structural reform, and strengthening international financial systems.

Lars Brozus of the Berlin-based German Institute for International and Security Affairs recommends the G20 strengthen its relevance by reaching out to economies outside of the club and by improving its relationship with the United Nations. Similarly, Maria Monica Wihardja of the Jakarta-based Center for Strategic and International Studies says Asian G20 countries should augment ties between regional forums like the East Asia Summit and the Asia-Pacific Economic Cooperation and the G20 to "improve the legitimacy of the G20."

James A. Haley, Director, Global Economy Program, Center for International Governance Innovation

World leaders at the G20 meeting will be required to scale two summits in one. The first is the official summit, with its full agenda, including stabilization and structural reforms, strengthening financial regulation and financial inclusion, international financial architecture reforms, green growth, and food security. Each of these issues will have an allotted time in the schedule, featuring set-piece interventions and earnest expressions over the need for action. While each of these topics is important in its own right, it is unlikely that substantive progress will be made on any of them. Indeed, in some respects, they will be a distraction.

This is because the other summit to be scaled at Los Cabos is the increasingly fragile state of the global economy. Behind the scenes, this is what will preoccupy leaders. The global economy will be the issue to which the time and energy of leaders, finance ministers, and other senior officials will undoubtedly be directed.

Prospects for the global economy have darkened considerably over the past several weeks, with new concerns about U.S. employment growth, coupled with recent signs of slowing growth in key emerging economies. Most worrying, however, is the deterioration in eurozone growth prospects and the heightened risk of a European banking failure. Spain's decision this past weekend to seek financial assistance to address the problems in its banking system underscores the gravity of the situation and the need for urgent action.

G20 countries have a legitimate interest in the timely, effective resolution of the crisis in the eurozone.

G20 countries have a legitimate interest in the timely, effective resolution of the crisis in the eurozone, which, if left unchecked, will impose a cost on the rest of the world. In an integrated global economy, each country's interests are tied to those of other countries.

But with their own summit planned for later in the month, European leaders are likely to rebuff G20 efforts to secure policy commitments on measures to contain and resolve the crisis. They will argue that the eurozone is an internal European crisis that should be solved internally.

This is the problem: Whereas other G20 members have the fiscal and political institutions to support their monetary arrangements, Europe has complete monetary union and financial integration, but incomplete fiscal and political integration to share risk across the eurozone. In this respect, the continuing crisis represents a fundamental failure of governance.

Europe needs to fill the gaps in its governance arrangements. And while crises can help break a political impasse that stymies reforms, they can also create forces that broaden existing cleavages. Marshalling the former and resisting the latter will take genuine leadership.

It would be encouraging if such leadership is provided at Los Cabos. This is, however, unlikely. As a result, the prospects for Los Cabos are not terribly bright. Expect a detailed communiqué long on the specifics of what should be done with respect to official summit agenda items, but short on concrete measures to address the growing risks in the global economy.

If G20 leaders don't successfully scale these twin peaks of Los Cabos, they will face a more daunting challenge: preserving the open, dynamic system of trade and payments that has been painstakingly created over the past seventy years. The need for international cooperation has rarely been greater. The question is: Will the G20 be capable of delivering?

Andres Rozental, President, Mexican Council on Foreign Relations

The upcoming summit is likely to partly suffer the same fate as last year's gathering in Cannes. The rapidly worsening crisis in the eurozone, with Spain and Greece again on the edge of a precipice, will certainly be on the leader's agenda and may well occupy some of their time while in Mexico. However, this does not preclude the summit from making progress on the issues that the G20 governments have been working on for the past six months.

Mexico's priorities for the G20 this year include economic stabilization and the structural reforms needed for growth and employment; strengthening international financial systems and promoting financial inclusion to stimulate growth; improving the international financial architecture; food security and commodity price volatility; and climate change and sustainable development in the framework of infrastructure, energy efficiency, green growth, and financing.

Financial stability, employment and sustainable development are all related to the global financial crisis and need to be examined in light of the broader multilateral agenda.

Financial stability, employment and sustainable development are all related to the global financial crisis and need to be examined in light of the broader multilateral agenda. But G20 leaders also have to make tough political decisions on these issues in order to gain credibility with their publics and move toward resolving the most urgent problems that face the international community. The G20 also needs to begin a transition from a crisis management committee to a global steering group that at the highest political level can help produce breakthroughs in other unsolved global impasses, such as climate change negotiations, international trade, weapons proliferation, drugs, and organized crime.

The Mexican presidency has done an outstanding job of reaching out to non-governmental actors such as the Business 20, the Think 20, and youth and civil society in general. However, unless the G20 begins to manage its transition to such a global steering body, it will be hard for it to maintain legitimacy once the immediate financial crisis fades.

Another problem the leaders face is how to ensure that the G20's working methods meet the needs of their agenda. Too many people at the table, the lack of a full-time secretariat, a non-functioning troika, and the unsolved dilemma of how to provide continuity between summits and accountability regarding decisions reached all need debate and resolution by the leaders. Only once these issues are addressed and decided upon will the G20 be able to meet expectations.

Lars Brozus, Senior Associate, EU External Relations, German Institute for International and Security Affairs

Whether the G20 leaders will be able to deliver solutions that have a positive impact remains to be seen.

The G20 should invest much more energy in improving its relations with the leading organization of the international community--the United Nations--in order to accommodate this challenge and avoid radicalization.

However, what is clear is that the G20's agenda far exceeds its original portfolio. Designed as a governance club for economic issues, the G20 has evolved into a multi-purpose institution with global reach. Consequently, its legitimacy is increasingly being challenged by the other members of the international community [the myriad of economies outside the G20]. The G20 should invest more energy in improving its relations with the leading organization of the international community--the United Nations--in order to accommodate this challenge and avoid radicalization.

The informality of the G20 is its most prominent feature. However, because of deliberate under-institutionalization--it maintains no secretariat and no weeklong meetings of preparatory committees--the G20 is more volatile than organizations like the IMF or the WTO. Therefore, global power shifts weigh heavily on the authority and the clout of its members.

In contrast, formalized organizations have been largely designed and shaped by the preferences of hegemons like the United States in the post-World War II period. Even if these hegemons decline, the institutions reflect their preferences. Thus, the multilateral postwar system favors powers like France or the UK. They may be in relative decline, but they still hold permanent membership on the UN Security Council (UNSC), whereas rising powers like Brazil or India remain outside that structure. Therefore, declining powers have an interest to keep the UN system relevant.

But engaging the G174 may be important for another reason. In the run-up to Los Cabos, the G20 foreign ministers for the first time met and discussed problems of international peace and security--so far the core domain of the UNSC. To correct the impression that this is yet another step towards marginalizing the UN, more commitment towards that system is needed by the G20 leaders.

A strong signal of their support of, and respect for, the UN system would have been aided by the appearance of all G20 leaders at the UN's Rio+20 summit in Brazil immediately following the Mexico meeting. Unfortunately, UK Prime Minister David Cameron and German Chancellor Angela Merkel will not attend the UN summit, and U.S. President Barack Obama is unlikely to attend. By missing one of the most important UN conferences of the [past] decade, they risk contributing to the growing perception that the G20 is an exclusive club concerned with expanding a narrow agenda that fails to take into account the issues facing the rest of the world.

Maria Monica Wihardja, Center for Strategic and International Studies

As Asia's global rise continues, the region will have to strengthen its interactions with the global system, including the G20. How Asia interacts with the G20 depends on who constitutes Asia and who speaks for Asia. There are five Asian countries at the G20 table: the People's Republic of China, Japan, South Korea, India, and Indonesia. However, there is no single, unified Asian voice. In short, Asia has failed to coordinate effectively.

Asian G20 countries should use their convoluted regional forums--including the East Asia Summit and the Asia-Pacific Economic Cooperation--to improve the legitimacy of the G20 and Asia's interaction with the global system.

Moreover, it's unclear how Asia's regional frameworks relate to the G20. Indonesia, the only Southeast Asian (ASEAN) country in the G20, has failed to reach out to its neighboring ASEAN countries, which is why its ASEAN neighbors are either indifferent to, jealous of, or in opposition to the G20. Asian G20 countries should use their convoluted regional forums--including the East Asia Summit and the Asia-Pacific Economic Cooperation--to improve the legitimacy of the G20 and Asia's interaction with the global system.

ASEAN+3 (ASEAN plus the People's Republic of China, Japan, and South Korea) has recently extended its ASEAN+3 Finance Ministerial Meeting to ASEAN+3 Finance Ministers and Central Bank Governors' Meeting. This new initiative should be seen as an advantage to the G20 process with regards to Asia's monetary cooperation.

At the same time, South Asian countries should not hold hostage their economic integration because of political conflicts, and East Asian countries should leave behind their historical bitterness toward each other.

Most Asian G20 countries see the G20 as the best way to relate to the rest of the world. China sees it as the best way to reform global governance, shifting it away from the current model of a U.S. family-business to a shareholding model. If Asia acts collectively to interact with the global system in economic areas and beyond, it could certainly strengthen its voice in the global system and bring the Asian Century under its leadership.

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