The Numbers Game: Prospects for the G7, G8 and G20 Summits
Remarks at the Pre-G7 Conference, Brussels, 2 June 2014
Nicholas Bayne, London School of Economics and Political Science/p>
Making predictions about summitry is always hazardous and never more than now. After a very successful G8 summit last year chaired by the UK, which slotted neatly into an effective G20 summit chaired by Russia, who would have forecast that this year's summit would be G7 instead of G8? The G7 summit therefore faces an exceptional degree of uncertainty. But the great merit of summitry is the resilience of the process. It can adapt rapidly to unforeseen change in a way that a formal organization never could.
These remarks are grouped under three headings: G8; G20; and G7.
It was certainly right for the G7 leaders to refuse to go to the Sochi G8 summit after Russia's annexation of the Crimea, in flagrant breach of international law. The G7 summit to be held instead has been organized with speed and efficiency. The question now arises: has the G8 gone for ever? Or could it and should it be revived?
G7/G8 summitry embraces both economics and politics; the two strands suggest different answers to this question. As an economic instrument the G7 forms a more cohesive group without Russia. Yet economic responsibility is passing to the G20 and should stay there. As a political instrument the G8 gains by the presence of Russia, which is a permanent member of the UN Security Council and can contribute to resolving many areas of tension around the world, such as Iran. Being in the G8 encourages Russia to play a responsible role in world affairs. As of now, this prospect has been ruined by President Putin, but it remains a worthwhile goal. This suggests the G7 summit should always meet with an empty chair, waiting for Russia to return. Meanwhile, the G7 can meet effectively on their own, in the format dating back to the 1970s.
That is just as well, as the wait could be long one. The G7 members have shown their disapproval of Russian actions by imposing economic sanctions; these could be extended if Russia makes more aggressive moves. Yet experience shows that sanctions imposed by governments take a long time to induce a change of policy, especially in a country as large and well-resourced as Russia. They can even have perverse effects, in strengthening resistance to change. In fact, the attitudes of private investors and the financial markets are likely to have a more potent impact. If Russia gains a reputation for unreliability and irresponsible actions, capital will leave, investors will go elsewhere and the external finance needed to diversify Russia's economy will not be forthcoming. There is already evidence of this.
In these conditions the best approach for the G7 would be to state publicly the conditions on which they would accept Russia back in the G8 and then leave the Russians to take the initiative, rather than to go chasing after them. The G7 summit, after all, has other important work to do, such as helping the G20 to work properly.
It is a major interest of all the G7 members that the G20 summit should provide collective management of the world economy now of the kind that the G7 provided in the past. In the process all members of the G20 should feel they have ownership of the institution and can use it to reinforce their own domestic and external objectives.
For this to work, it is essential to avoid the G20 splitting into G7 and non-G7 camps. The G7 summit should not abandon its economic vocation. But it should focus on issues where it can complement the work of the G20 without conflicting with it. The agenda chosen for last year's G8 at Lough Erne, which focused on regional trade agreements and tax avoidance, served this purpose very well. The agenda prepared for this year's G7, which combines energy issues and other new items with a review of last year's commitments, could be equally successful.
The best way for G20 countries to develop a sense of ownership is by holding the annual chairmanship, which rotates between five regional groups. Countries that hold the chair become committed to the process, especially as their responsibilities begin in the year before their year in office and continue in the year after it. Four G7 countries have already held the chair: the United States, United Kingdom, Canada and France. But none of the three big emerging powers – Brazil, China and India – have yet done so.
However, the regional rotation means that China could claim the chair in 2016; Brazil in 2018; and India in 2019. (Germany is the most likely candidate for 2017.) This sequence of big emerging powers directing the G20 summit should enable them to put their mark on the process and ensure the institution reaches its full potential. The G7 members should make clear their full support for such a sequence and not allow it to be sidetracked by rivalry between the US, China and Japan.
These external issues, dealing with Russia and the G20 as a whole, are the easy part for the G7. The hard part is to deal with the internal problems that are holding them back and causing them to lose ground internationally. The G7 needs to rediscover its original sense of purpose, from the days of its foundation, and put its own house in order.
The United States has recovered fairly well from the trauma of the financial crisis. But the political deadlock between Administration and Congress weakens its own performance and frustrates its external objectives. Unless the US can enact 'trade promotion authority' to conclude the negotiations on the Trans-Pacific Partnership (which includes Japan and Canada) and on the Trans-Atlantic Trade and Investment Partnership with the European Union, these vital initiatives will run into the sand. The failure to ratify the quota reforms in the IMF, agreed in the G20 back in 2010, is preventing the essential re-direction of IMF governance, to the great frustration of the emerging powers that will benefit from it.
The European Union has, with great difficulty, avoided the disintegration of the euro-zone. But the economic recovery remains hesitant in most member states. The highly unsatisfactory results of the elections to the European Parliament in May reveal the depth of the political malaise in the EU. With so many euro-sceptic members now in the Parliament, it will be harder to enact enlightened trade and other economic reforms.
Both the US and the EU have suffered from being inward-looking and resistant to any outside advice. The G7 can provide an intimate forum in which they can get together and thrash out the problems that are holding them back in the world at large. The next two years provide a good opportunity for the G7 to focus on its own failings, rather than those of others. At the 2015 summit Chancellor Merkel will hold the chair and can bring all her experience and authority to bear. In 2016 the summit will take place in Japan, where Prime Minister Abe has been introducing reforms to revive the sluggish Japanese economy. Throughout the lifetime of the summits, internal problems have always been the hardest to resolve. But the leaders always rise to the occasion eventually and can surely do so again.