The impression that the Los Cabos G20 was dominated by the debate over growth versus austerity is misleading in many ways. The debate — and the tension — is far greater, from a global governance perspective, than this dichotomous construct allows.
A better way to capture the ideational conflict is through the differences between the supporters of prudence as the guiding template of governance and the advocates of greater largesse or generosity. Although Germany is commonly depicted as the outlier in terms of pushing for austerity measures on other European countries, this does not make Germany anti-growth. The reason that Chancellor Angela Merkel was the dominant political figure at Los Cabos is based on the enormous growth driven by German companies — the giant as well as Mittelstand companies. Moreover, as reflected in statements by Chancellor Merkel, Germany is fully supportive of an agenda that welcomes significant action by the euro area to support growth. Whatever other rationales exist, at an instrumental level, the more growth there is the more sales there will be for German companies.
What differentiates Germany from most other EU countries (although not from the Netherlands, Finland and, to some extent, the UK) is a concern with prudence. The guiding principle for Germany — and Chancellor Merkel — is to ensure stability and promote fiscal responsibility within the ambit of European Union and G20 dynamics.
The reason why Germany is so obsessed by prudence goes well beyond the purview of this article. Some, including Chancellor Merkel, point to the Schwäbische Hausfrau, the thrifty Swabian housewife from southern Germany, a figure Chancellor Merkel refers to when she wants to send the message that Europe is living beyond its means. Others, although not in contradictory fashion, highlight the traumas associated with inflation from the 1920s. The only rationale of a historical/socio-cultural nature that doesn’t fit — given Chancellor Merkel’s Christian Democrat affiliation — is that this approach reflects a religious split between a prudent Protestant North and Catholic South.
If the framework of prudence is privileged, a country such as Canada can be seen as being on the same side as Germany. Canada — and Prime Minister Stephen Harper — has been particularly vigorous on this debate. This point is hammered home on Canada’s position that it will not give more money to a “second line” of defence via the International Monetary Fund (IMF) for the European Union, as opposed to poorer countries in the global South. What is asked by Canadian decision makers (and elements of the Canadian media, as illustrated by the direct question to the EU Council and Commission presidents at their joint press conference yesterday) is whether Canadian taxpayers should contribute to bolstering Europe’s standard of living (still high, in global terms — albeit the stereotype of “sumptuous euro welfare state” has been diminished by pictures of soup kitchens in Greece). As Canadian Finance Minister Jim Flaherty has put it: “I would…suggest that they first step up to the plate themselves before they pass the plate to others. And this view — I can tell you because I’ve been at the meetings — is shared by a significant number of non-European countries.”
The focus on prudence, however, opens up the question of whether this approach is advanced at the expense of largesse or generosity. The German and Canadian governments would argue that the two templates of global governance are not mutually exclusive. Yet, when prudence is used as a mechanism to exert authority over other countries, including other members of the G20, the effect is going to be the image that generosity is subordinated to prudence. There is a virtue for pushing some degree of prudence. Germany can say “no” with some considerable domestic support to calls for a loosening of fiscal discipline – growth bought on credit! Canada can say “no” with a good deal of domestic support to the mobilization of new resources in the IMF.
If, though, the prudence is tilted from being for the undeserving (well-off European countries) to the deserving poor (in the poorest of countries), virtue risks becoming a danger in global perceptions. Indeed, if prudence is translated into a decline of a lack of largesse or generosity on the wider global community more generally, the image of these countries will become one of smugness — not only dismissive of other countries’ needs, but moving away from their own responsibilities in terms of development assistance, health promotion and other forms of public good. Instead of an end site for finding an elusive balance on growth versus austerity, Los Cabos should, therefore, mark the beginning of a wider debate between a necessary rebalancing between prudence and generosity.