CIGI Commentaries, June, 2010
The G20, in one of its most important actions to date, established the Financial Stability Board (FSB). But lessons from previous years suggest that familiar political realities will intrude to challenge the efficacy of this new post-Bretton Woods order, writes CIGI Senior Fellow Bessma Momani
At the G20 summits at London and Pittsburgh, governments had to face together a global financial crisis that their nations could not address alone. Industrialized and emerging market economies have rarely developed coordinated national policy responses to international economic problems, even though their economies are mutually interdependent.
The advent of the G20 leaders' summit is a major advance in international economic policy governance. The forum has been successful in broadly orchestrating the return to stability in the international financial system by agreeing on fiscal and monetary measures in developed and many emerging economies, and by assigning new responsibilities to international financial institutions. Regular interaction among G20 leaders, supported by sound technical analysis, will help build trust among the leaders and result in greater coordination of macroeconomic policies over the longer term.
The sherpa teams organizing the next G20 summits are in a position to design a win-win package deal to help break the climate change deadlock. Progress requires leadership - a small group of countries must agree to move forward together. A small group of key countries could have significant impact if they agree to a "Grand Bargain" involving cooperation on research and development, future standards, security of supply and measurement of emissions. Forget targets and transfers for now. In the absence of leadership, the waters will continue to rise.
The G20 presents opportunities and poses challenges for China and other developing countries. As new partners at the global table, they can both raise and pursue issues in the medium to longer term that are central to their continued growth and development. Furthermore, China can be expected to be at the centre of negotiations on reshaping of the international governance system. With strong economic links to both developed and developing countries, and a strong interest in a well-functioning international economic system, it can play a pivotal role in determining the outcome.
Where does China stand? And how does this impact global leadership? While many G20 countries will likely look to Beijing to act as a global leader, it is likely that China will fall short of expectations in terms of both ideas and resources. China will step up to the mark on occasion, but not always, and the G20 leaders and others will have to accept that Chinese collaborative behavior will be slow and at times frustratingly cautious. China may well be – the part time global leader.
Thanks to Lord Nicholas Stern of Britain, a compelling case has been made about the drastic economic consequences of failing to deal in good time with climate change. The next economic crisis might well be driven by an inadequate response to climate change. We have seen from the Great Recession that the G20 can deal successfully with global-scale problems. We need it now to focus its efforts on the quintessential global governance issue – climate change—that could doom us all if we can’t find the means to agree to change course.
International trade is, in effect, the circulatory system of the contemporary world economy. Leaders at the upcoming G20 summits, in Toronto this month and in Seoul in November, will want to spend some of their time discussing international trade, both what they should do and should not do about it, individually and collectively, as they attempt to provide leadership and improve prospects for the betterment of the world economy.
Since November 2008, the G20 appears to have consolidated its position as the hub of economic governance. Moving from its initial role as an improvised "crisis buster," the forum has begun to take shape as a global "steering committee." Yet from its origins, the G20 has suffered from some deficiencies concerning its size and geographic make-up. Given the scope of the G20’s ambition, refining the structure so that it combines a core membership with some degree of accessibility will only enhance its credibility.