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G8/G20: Meeting Expectations in Canada

Christopher Sands

Summit meetings produce results when the leaders attending share a consensus about problems and potential solutions. No such consensus is apparent as world leaders head to Canada this week to attend the Group of Eight (G8) and Group of Twenty (G20) summits in Ontario. Given the history of these global summits and divisions among the leaders who will be attending, Stephen Harper has done well in trying to position the meetings to generate modest positive results. Yet low expectations prevail for the meetings amidst a global economic crisis that Canada feels less than most of the countries whose leaders it will host.

It is important to remember why these summits take place at all. Contrary to appearances, the summits of the G8 and G20 are not just excuses for photo-ops or meet-and-greet receptions for elite leaders of the world’s economies. These groups formed at different times in order to foster coordinated responses to the inter-related problems of the global economy that are most often caused or exacerbated by domestic fiscal, monetary, industrial and trade policies. Meeting face to face doesn’t always bring leaders to see things eye to eye, and often results in nothing more than an exchange of perspectives. But the expectations of global summits are weighed against the gravity of the problems that the leaders meet to discuss and then return home to address; the more difficult the problems, the higher the hopes and the lower the expectations for a successful summit. Yet breakthroughs can and do happen, which is why summits and the quality of leadership demonstrated by the leaders who attend them continue to matter.

The G8 was formed to address monetary policy issues in response to the exchange rate crisis that U.S. President Richard Nixon sparked when he took the U.S. dollar off the gold standard in 1971. This unilateral move shocked European and Asian allies, but came after months of U.S. requests for an end to competitive devaluations that were having the effect of exporting inflation to the United States economy while hindering U.S. exports. After the Nixon shock, the leaders of Britain, France, West Germany and Japan sought a meeting to discuss monetary policy coordination and to address the effects of the first oil price shock in 1973 that followed.

President Gerald Ford was more open to dialogue with the allies on inflation and other economic policies than Nixon had been, and the Group of Six was formalized to coordinate macroeconomic policy in 1975, when the leaders of the United States, Britain, France, Italy, Japan and West Germany met in Ramboulliet, France. Canada was added, at Ford’s insistence at the 1976 meeting in San Juan, Puerto Rico and the G6 became the G7. In 1977, the President of the European Commission was invited as an observer, and today the European Union president attends. Russia began attending as an observer after the collapse of the U.S.S.R., and became a full member of the renamed G8 in 1997.

A set of developing economies (Brazil, China, India, Mexico, and South Africa) was added to form the G8+5 in 2005, and the Plus 5 countries participate in some but not all of the sessions of a G8 summit. Developing countries were worried about having a voice in global economic governance, but the G8 mainly offered conditional aid pledges and Olympian expressions of concern. Aid was important by the start of the new millennium, but as expressed in the United Nations Millennium Development Goals, a key concern for developing countries was market access to the world’s leading consumer nations in order to facilitate export-led development and growth.

It is an axiom of political economy that when people become wealthier, they desire a growing say in the governance of the economic flows that have made them so. Developing countries sought a meeting with developed countries that could give them a voice in governing the economic flows of globalization. In 1999, the largest developing countries were invited to a meeting of the G8 finance ministers in Berlin, and the G20 was formed. The G20 includes the G8 countries, the Plus 5 countries, and adds Argentina, Australia, Indonesia, Saudi Arabia, South Korea, Turkey and a full seat at the table for the European Union. It held occasional meetings and engaged in broader diplomatic discussions on the global economy until 2008.

In 2008, the G20 leaders met formally in Washington to discuss the onset of a global recession. The G20 began to meet twice annually after their Washington summit, and at a summit in Pittsburgh in September 2009 the G8 recognized the G20 as the leading forum for discussion of the global economy.

More meetings and more leaders at the summit table makes consensus, if anything, more difficult. And there is little evidence of consensus heading into the summits of the G8 and G20 in Ontario this week. The leaders of the G8 in particular face three problems that make consensus difficult: domestic policy preoccupations; macroeconomic policy differences over how to respond to the current recession; and the absence of strong personal relationships among the current crop of leaders.

The summits in Ontario will seem like a break from the serious political debates at home for most of the G8 leaders. The governments of Britain and Japan are new, and still finding their feet while facing serious fiscal crises. The German government is wrestling with the Greek debt crisis, one that could yet bring about the collapse of the euro. France’s government was rebuffed in local elections earlier this year, and the United States is facing an unprecedented fiscal crisis and midterm elections of its own in November. In both Italy and Russia, the government of the day seems secure, though their respective economies are suffering along with the rest of Europe.

And yet, the domestic strategies of the major economies put their leaders at odds with one another. Germany wants tough discipline imposed on Greece, Portugal and other indebted euro-zone members; France urges a more generous bailout of these countries. Britain remains outside the euro-zone, but as a European Union member state is criticized by the others for not contributing enough to help stabilize Greece and the others. Japan’s new government has pledged a tough fiscal program after two lost decades following the pop of a real estate bubble and a massive fiscal stimulus that left the country saddled in public debt. The United States shows little sign of fiscal discipline, and wants its trading partners in Europe and Asia to raise the value of their currencies and permit the weaker U.S. dollar to aid growth in U.S. exports to meet President Obama’s pledge to double U.S. exports and create 2 million new U.S. jobs. European countries can do little until they have sorted out the euro-zone crisis, and Japan and China have their own reasons to resist.

Add to this the relatively poor state of the personal relationships among the G8 and G20 leaders. Nicolas Sarkozy and Angela Merkel are not as close as François Mitterand and Helmut Kohl once were, and both leaders are wary of David Cameron’s Conservative government and its ambivalence about Europe. Silvio Berlusconi is the dean of the European leaders, but has been mired in corruption allegations at home and while he still dominates Italian politics at 74 years old, Italy faces an uncertain succession when he is gone. Russia’s thuggish foreign policy has won it few close friends under Dmitry Medvedev or his patron Vladimir Putin. Japan’s new Prime Minister Naoto Kan came to power after his predecessor resigned last month and faces elections in the fall, and will meet most of the G20 leaders for the first time at the summits.

President Barack Obama, though still popular with international publics, is not known to be close to any of the other G8 leaders or the leaders of the wider G20. In fact, Canada’s Stephen Harper and Mexico’s Felipe Calderón may be the two leaders with the best personal rapport with the U.S. president, who has shown himself to be far more comfortable with domestic policy than international affairs. The economic integration of the three North American neighbors makes regional diplomacy closer in tone and substance to the domestic policy topics that interest Obama the most.

Canada’s situation is unique: the Canadian economy is the envy of the world, buoyed by commodity prices (which have surged as a hedge against inflation and as a safe haven in the face of policy uncertainty) and conservative regulation. But Canada is not immune to the world’s problems: the Canadian dollar is rising as the U.S. dollar, the yen and the euro all fall in response to economic conditions there, and the Chinese central bank is under strong international pressure to allow the yuan to rise in value. With the world’s reserve currencies losing strength, Canada’s strong dollar could become a liability as the recession threatens a “double dip” in 2010-2011. Many leaders will admire Canada’s success, but few will consider Canada a model: its export dependence on the United States, reliance on commodities for growth, and Ottawa’s unilateral cuts to fiscal transfers to the provinces in order to address the national deficit and debt problems of the 1990s are all peculiar to Canada’s fortunate endowments of natural resources, geographic location, and constitutional arrangements to be replicated elsewhere.

So, what can Stephen Harper do as host of these two international summits to help foster the health and recovery of the world economy – upon which Canada depends in this era of global economic linkages?
At this late stage, not much. The disagreements that divide the G8 are significant enough that when G8 leaders meet in Huntsville/Muskoka, they will agree to disagree on the major items, and perhaps identify whatever common ground they can find and pledge to work cooperatively and avoid conflicts over the coming year. Although the G20 has great promise, without a consensus among the G8 economies about how to proceed, the G20 can only call for greater consensus and air the growing concerns about the macroeconomic policy approaches of the world’s largest economic players.

Harper has seemed to recognize the limitations of the moment in his agenda for the G8 and G20 meetings. He has revived an earlier G8 pledge to do more to raise official development assistance to child and maternal health programs around the world—and while details such as the funding of abortion may be controversial, in general this is a broadly popular effort. At the same time, Harper has exploited the lack of consensus among the leaders to derail proposals for an international bank tax that had been promoted by some governments as a response to the financial market crisis.

The low expectations for the G8 and G20 meetings in Canada are not Canada’s fault, and there is little Canada can do now to build consensus among the fractious world leaders who will come to visit in the next few days. Yet Canadians, like citizens of the other G8 and G20 member countries, must hope that their leaders will take the first steps on the road to a greater global consensus on macroeconomic policy direction in Ontario at least.

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