The G20 has had an impressive run at going big, in terms of collective action.
Faced by a near-death experience in the global economy – due to the collapse of Lehmann Brothers, the bankruptcy of AIG, the sub-prime housing catastrophe in the United States, and the hemorrhaging of financial markets – the leaders of the major economies came together in Washington in 2008 and offered a decisive stimulus package.
Subsequent summits in London and Pittsburgh maintained this momentum, as a psychology of uncertainty trumped any return of normalcy.
During this period, a lifeboat ethos dominated the G20. Countries worked together, combining established G8 nations with rising powers from the global south. Leaders invited to the G20 concentrated on problem-solving rather than a blame game. Officials worked long and hard. Multiple responsibilities were delegated to the International Monetary Fund or the revamped Financial Stability Board.
Learning lessons from the 1930s, the G20 nations animated an interventionist spirit. The intensity was palpable. Rather than viewing the crisis as one where countries were decoupled from each other, images of interdependence dominated. Markets were seen as needing regulation.
But the G20’s role has been complicated by the very success of its initial mission. The widely anticipated return to a Great Depression was averted, yet no single accepted strategy emerged to exit from the stimulus packages. A variety of different domestic circumstances among G20 nations rose to the fore.
Faced with this changed environment, the Toronto G20 could not find the same degree of internal unity enjoyed by the three earlier summits.
Still preoccupied with a growth agenda, U.S. President Barack Obama wants to maintain the focus on stimulus. Several European countries, however, have become firm advocates of deficit-busting. Stung by the contagion of the Greek budgetary problems, Germany wants to implement an aggressive plan of fiscal tightening. Led by a new Conservative prime minister, David Cameron, the United Kingdom unilaterally introduced a tough austerity budget.
Without a consensus on either collective stimulus or one-size-fits-all deficit-cutting, the Toronto G20 will be remembered – if not for riots on the streets – for the skill with which these disagreements were papered over.
The final communiqué states that there will be fixed targets and a timetable for both deficit- and debt-cutting – but in their individual media briefings, national leaders told different stories. German Chancellor Angela Merkel highlighted the acceptance by the G20 of specific measures to cut deficits. French President Nicolas Sarkozy stated that the targets were voluntary and open to achievement by different routes.
Faced with these strains, the G20 has two options – not mutually exclusive – to maintain its status as the hub of economic global governance.
First, instead of imposing discipline on a club of countries with very different identities and interests, the G20 must replicate this flexible approach in other areas of controversy, such as the establishment, or not, of new bank taxes. Common rules should be left to areas where consensus can be built, notably on standards for bank capital. Even here, once again, a two-track process is needed as countries with under-capitalized banks go at a slower pace.
Second, the G20 needs to keep its sense of ambition. As host for the November G20, South Korea appreciates the need to focus on global development issues. As the economic crisis recedes, the G20 can take on this new mandate. The Toronto summit will be remembered as a transition point, between trying to finish the agenda that created the group and a broader set of concerns relevant beyond the G20 membership.
Andrew Cooper is a distinguished fellow at The Centre for International Governance Innovation in Waterloo.