from Macro and Markets

G20: Preparing for the Next Crisis

November 12, 2015

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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The leaders of Group of Twenty (G20) meet this weekend in Antalya, Turkey. The agenda is long, the ambitions are modest, and it is easy to be cynical that the group has outlived its usefulness. Still, the meeting matters in a number of respects: strengthening relationships among leaders of the most important economies, providing momentum to ongoing reform initiatives, and pushing forward work on issues as diverse as climate change and tax avoidance. The most important task for the group though will be preparing for future crises, because it is at those times that G20 leadership is most critical. The G20 will have some satisfaction that serious economic shocks were weathered in 2015. In 2016, when China leads the G20, the story could be different.

The headline for this year’s G20 summit is support for robust and inclusive growth, reflecting both frustration with the tepid pace of global activity and a rising global concern with income inequality. The question though is whether there is a collective will to find a solution that goes beyond what these countries are choosing to do already. That would involve countries with fiscal and current account surpluses stimulating demand at a time when deficit countries are tightening their belt.  This is an argument the U.S. government has made for a number of years, presumably aimed at China and Germany in particular. The odds of success on this count always were small, but with China focused on its own economic challenges and Germany (and its European partners) strained by the migration crisis, hope for any meaningful agreement on growth seems even more distant.

The reform “deliverables” for the summit are similarly unambitious. The economic agenda includes a focus on expanding infrastructure, strengthening trade (through implementing a trade facilitation agreement stalled after objections from India) and pursuing development goals in low-income countries.  But little is expected to be achieved in these areas at this summit.  As noted by Matthew Goodman and Daniel Remler, the summit should deliver a Base Erosion and Profit Shifting (BEPS) action plan, aimed at curbing tax avoidance by multinational corporations, and the group will give a strong push to the United Nations Climate Change Conference that begins later this month in Paris. Ongoing work on financial sector reform will be endorsed and encouraged.  But, at a time when the agenda of the G20 is becoming overloaded with a rapidly growing wish list of reforms, progress in this area is likely to disappoint all but the most dedicated G20 watchers.

These summits, given the presence of world leaders, always provide an opportunity to discuss the political security issue of the moment, and this time is no exception.  Turkey’s President Tayyip Erdogan has signaled that he wants leaders to discuss the crises in Syria and Iraq, and that his government stands ready to take stronger steps in the region to resolve the current crisis. Following on earlier talks in Vienna, and with Turkey struggling to deal with the fallout from the continuing Syria crisis, this issue may well capture the headlines.

When Chinese markets came under pressure in August, there was broad concern that we might be on the verge of a global crisis.  Those concerns have receded, based on signs of temporary stability in China and a belief that emerging markets are better prepared than in the past to weather a shock.  I am not so sure, and in any event the question for policymakers this week is how to respond to a crisis that begins in the emerging markets. In my monthly, I argue that we are not as well prepared as we need to be. If a crisis does emerge, the G20 will be looked to lead again, as they did in 2008-09.  From this perspective, the value of this week’s summit is in strengthening the relationships between leaders that will allow for a prompt and efficient response should the downside risks materialize.

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