The G20 is again in the news following the February 2011 Finance Ministers’ meeting with media coverage dominated by news that leaders agreed on a ‘list of indicators to identify and reduce trade imbalances.’
This development comes under France’s G20 presidency, which inherits an unfinished agenda from past G20 summits. In August 2010, President Sarkozy unveiled France’s priorities for their G20 presidency. These include reforming the international monetary system (such as instability in currency exchange rates, the accumulation of imbalances, excessive levels of foreign exchange, and the single reserve currency); controlling volatility in energy and agricultural prices (and the functioning of derivative markets); and world governance reform (a G20 secretariat, financing a climate agreement, reform of the IMF and specialised UN bodies, including the Security Council).
Hopes are high for France. The French have the requisite characteristics of Gallic confidence and Cartesian thinking to attack challenging problems, and a domestic political situation that demands success on the international stage. But there are six reasons why expectations for the G20 this time round are unrealistic.
First, Obama cannot deliver, given the US political gridlock.
Second, cooperation from Japan cannot be counted on either. Parochialism and fondness for their role as Asia’s sole representative in the G8 means that Tokyo would sooner undermine the G20. Paradoxically, Italy and Canada also value their large shareholding in the depreciating G8 higher than their smaller shares in an appreciating G20.
Third, cooperation from China is problematic. We forget the Asian concept of ‘face’ — the Chinese will never permit the appearance of being bullied in a G20 context. The renminbi–dollar real exchange rate is increasing at an annual rate of 10 to 12 per cent, which if continued would complete the needed correction of 20 to 30 per cent by 2014. So while the G20 could be instrumental behind the scenes, the Chinese will never allow it to take credit.
Fourth, G20 Summits are too brief and too large to deal with the complexity of topics they seek to address. This is especially given leaders’ lack of technical expertise, the different languages and the different cultural approaches to decision-making.
Fifth, non-members hotly contest the legitimacy of G20 decisions purporting to extend to other countries. And, of course, the G20 cannot make binding decisions.
Sixth, there is a lack of consensus on what needs fixing in the current system or ‘non-system,’ as Ted Truman calls it, and a lack of agreement or common diagnosis of what needs to be done. Systemically, important countries still do not accept any individual obligations to promote financial and economic stability.
It is disappointing that France has dropped the idea, broached last August, of a G20 Secretariat. France should have pursued, over Japanese objections, the light option of a small secretariat to manage the extensive preparatory process, ensure continuity, institutional memory and the implementation of plans and promises. A secretariat like this could be driven by French diplomats working with officials of other ‘troika’ countries. The secretariat could then move with the presidency each year. Staff could be attached to the secretariat for a maximum of three years, and paid by the sending government.
It is also disappointing that France has not adopted Korea’s fulsome outreach strategy for the Seoul Summit — seeking ideas and inputs from non-G20 countries. Instead they have overburdened the G20 agenda by adding commodity volatility and a tax on financial transactions (although it was wise to drop the albatross idea of UN Security Council Reform).
But there is hope for 2012. While the French may yet do a great job responding to the financial crisis and financial re-engineering, the Mexicans — who demonstrated aptitude in their skilful chairing of the December 2010 post-Copenhagen climate change conference — are next in line.
Mexico may artfully set up an informal secretariat, establish a ‘troika leadership,’ and pursue an adroit outreach strategy. Most important, they can limit the agenda to deal with existing G20 commitments, resisting the temptation for a new initiative. Then the G20 could graduate to a wider agenda, one that is at the very fore of global economic governance. Viva Mexico!