Keeping Cool in St. Petersburg: Criteria for a Successful G20 Summit

Call it the summit of “compartmentalizing”. When President Obama and fellow leaders convene in St. Petersburg, their toughest challenge will be to focus on economic recovery while ignoring the elephant in the room: namely, the rift between host Russia and the United States on a possible U.S. military strike to punish Syrian use of chemical weapons. Setting aside diplomatic acrimony—and personal animosity between Obama and Russian President Vladimir Putin—will not be easy. But it is imperative to ensure coordinated multilateral support for global growth and meet past G20 pledges.

Nearly five years have passed since President George W. Bush convened the first, emergency meeting of G20 leaders. Over the past half-decade the G20 has done remarkable things. It prevented the Great Recession from becoming a “Great Depression by injecting capital into the world economy. It held the line against protectionism, adopting “standstill” provisions against new trade barriers. It negotiated shifts in the “shares and chairs” governing international financial institutions, to the benefit of emerging economies like China. It endorsed stiffer capital requirements for banks under Basel III and new regulations for systemically important financial institutions (SIFIs). Finally, it began the slow, painful process of global rebalancing between the world’s chronic surplus and deficit countries.

Much work remains to be done, however. Global recovery has been anemic, financial markets are volatile, and the G20 has promises to keep. In July, the World Economic Outlook of the International Monetary Fund (IMF) downgraded projections for growth in both advanced and emerging economies. Within the OECD, Japan has emerged as a bright spot, but the success of “Abenomics” will require painful structural reforms. In the United States growth has been steady if unimpressive and equity prices have surged, but long-term fiscal problems cloud the future. The Eurozone is barely treading water, making little dent on unemployment despite recording its first positive growth after six quarters of contraction. The BRICS, meanwhile, have entered a less heady era, though they will continue to outpace advanced economies. The overall result is a “three-speed recovery,” with growth slower than desirable everywhere. Nothing dire. But nothing to write home about, either.

What is clear is that restoring global demand is beyond the capacity of any single country or region. The United States, as U.S. officials ceaselessly repeat, can no longer serve as the consumer of first and last resort. At the same time, the benefits of unconventional monetary policy, as pursued by the Federal Reserve, the Bank of Japan, and the Bank of England, appear to have run their course. Getting the world moving again will require reinvigorating multilateral cooperation within the G20.

Effective during crisis years, the G20 has since lost momentum. Its solidarity has eroded, as economic trajectories and preferences of its members diverge. St. Petersburg offers a chance for G20 leaders to regain their mojo and restore global confidence. They must throw their collective political weight behind credible, practical policy initiatives that go well beyond central bank cooperation to address the chronic obstacles to global growth and employment.

Here are four priorities for leaders:

Russia’s government has placed other items on the St. Petersburg agenda, reflecting the proliferation of G20 working groups. These include global development issues, including food security, financial inclusion, and infrastructure financing. Picking up on the G8 summit in June, the agenda also includes steps to cooperate on tax evasion and avoidance, as well as “fighting corruption.” (The latter is a challenge the hosts are presumably familiar with, given Russia’s miserable rank—133 out of 176 countries surveyed—in Transparency International’s 2012 Corruption Perceptions Index). Working groups will also discuss financial regulation, promoting energy security, eliminating “wasteful” fossil fuel subsidies, and reducing commodity market volatility through transparency. Each of these worthwhile issues may deserve a line or two in the communique.

But few merit deliberation by G20 leaders themselves. They should focus their limited and valuable time on discussing those few topics that demand a policy breakthrough at the highest level—and for which no other global institution has the authority or competence to take the relevant decisions.

The St. Petersburg summit will not occur in a geopolitical vacuum, of course. Syria—including the wisdom and legitimacy of a possible U.S. strike, and congressional authorization for it—will dominate media headlines. The leaders, too, will find the subject irresistible. To address such issues of high politics, as I’ve written, it’s time for the G20 to consider adding a parallel foreign ministers track (alongside its meetings of finance ministers and central bank governors). Until then, such conversations will likely occur in informal “sidebars,” outside the plenary sessions. The juxtaposition of these two separate conversations—one on economics, the other on security—reflects a reality of global interdependence: even strategic rivals have a common stake in an open, stable financial and trading system. There is no alternative, as the cliché would have it, but to walk and chew gum at the same time.