As the global financial crisis fades, so does the sense of urgency about tackling the shortfalls in global governance that were highlighted by the crisis.  Close observers warn that the opportunity provided by the crisis to push through the needed measures to stabilize the global financial system, to reform the global architecture and address global imbalances is dissipating.  Many now suggest that the G20 needs to be transformed from a global “crisis committee” to a global “steering committee.”

As a crisis committee, the G20 leaders’ process has accomplished much over the past year-and-a-half.  The value-added of the G20 process — in contrast to the G8 summits of late — was demonstrated at the London summit in early April 2009, and the follow up Pittsburgh summit in October last year, when the leaders of the G20 pledged US$1.1 trillion in new commitments for emergency financing to respond to the crisis.  The primary achievement of London and Pittsburgh was the collective action of the leaders in restoring confidence in the global economy, especially for institutional investors and financial lenders.

 As the financial turmoil turned into a broader crisis of economic confidence, it was essential that “the 20” kept their focus on crisis management. It was essential for world leaders to restore confidence by demonstrating that there was “someone out there, in charge.”  Importantly, the G20 leaders focused on identifying concrete and realistic goals, which were aimed at giving a sense that “the beginning of the end” of the global crisis was at hand.

Central bankers and financial officials have taken on the yeoman’s work of re-regulating global finance — working out the details of the financial regulatory reforms in their respective national contexts.  Responsibility for providing international coordination on re-regulation has been delegated to the Financial Stability Board.  It is fair to say that the G20 leaders’ process has done a commendable job in providing direction on financial re-regulation to date — a work plan has been approved and reforms have been set in motion.

The Issue of Global Imbalances

Less success has been achieved, however, on the other big issue for restoring the stability of the world economy: global macro-imbalances.  Here, the aspiring global steering committee is facing political gridlock.  The reality is that fallout from the global crisis gave a sense of focus and urgency to the “immediate agenda” of the G20 on issues such as financial re-regulation, exit strategies and anti-protection, that are directly related to containing the crisis. However, it is much more difficult to build new consensus on the “underlying agenda”: those issues indirectly related to the financial crisis such as global imbalances.  Moreover, it is questionable how much effort has actually been directed at building a new consensus — rather than applying pressure to adjust on the surplus countries.  There is even less consensus among the G20 on the “momentum agenda” issues — items that have less direct bearing on the financial crisis, but frame the G20’s work program. Examples of these are climate change financing, development aid, global financial safety nets and the Doha Round.  

The G20 faces political gridlock on the issue of imbalances in particular.  A group within the G20 now appears to be going public with their pressure tactics.  Some governments are trying to induce their desired outcomes by advancing future scenarios that warn of continued low growth, return to crisis and a global trade war, if the necessary adjustments are not taken.  The drawback in so doing — regardless of the minor diplomatic gains — is that it may damage the new performance legitimacy that the G20 has just built by delivering on crisis management and financial re-regulation.  For example, China — a not insignificant member of the 20 — has started to suggest returning to more formalized institutional arrangements, such as the International Monetary Fund, to deal with the longer-term stability issues such as exchange rates and imbalances. 

The Limits of the G20 Process 

Through track one and track two channels, Beijing is sending the message that it may be time to return to established institutions, procedures and rules for inter-state bargaining, rather than continuing along the informal G20 track.  This suggestion, either intentionally or otherwise, highlights the relative limits of the G20 process.  It indirectly suggests to mid-ranked powers that they may want to consider restraining their own diplomatic ambitions and to avoid pushing to expand the G20 agenda to the point where some great powers, such as China, may begin to disengage or downgrade their involvement in this summitry process, especially as the global crisis subsides. 

In the eyes of many of those who support a shift of the G20 to an expanded agenda, the main dilemma for the G20 in focusing on the underlying and momentum items is figuring out how best to construct broader and more inclusive consultation mechanisms to ensure that the views of the “excluded” countries are taken into account in G20 decision making. In fact, the opposite perspective may be true.  As the G20 enters into the realm of underlying systemic issues, especially global financial and trade imbalances, effective resolution may actually require that fewer states be at the negotiating table.  From the standpoint of effective bargaining, it is reasonable to ask “how many countries really need to be at the table to bring dramatic shifts in the situation of imbalances.”  The uncomfortable answer (for many in the G20) may actually be four or five major surplus and debtor countries — with the EU representing collective European interests. A similar argument in favour of fewer actors could be made for climate change discussions, especially on emissions controls and technology transfers.  In such a scenario, a new “G4/5” would want to consult with the broader G20 in order to ensure that appropriate burden-sharing arrangements are worked out for the system as a whole — to ensure effective implementation.

On the imbalances story, signs of hope are emerging — though not at, or only indirectly related to, the G20 level. The US and China, leading actors in the saga, have been repositioning, bilaterally, over the past weeks.  In late March, the US Treasury announced that it would delay for three months a report on China’s currency policy originally set for release in early April. China, in turn, offered to join talks on sanctions against Iran.  And Beijing has provided assurances behind closed doors that it intends to reintroduce greater flexibility in the renminbi-dollar exchange rate.  These moves are concrete steps to defuse tensions, to give each party time to work out solutions that do not appear to be driven by the other side.  They also give both sides time to work out substantive trade-offs as well as reassurances that only these two great powers can provide to each other.

Moving, Together

For Canada, host of the G20 summit in Toronto, these shifts at the G2 level improve the chances of holding a successful summit at the end of June. For mid-ranked countries and multilateralists, the issue is how best to support the constructive shifts that have taken place at the bilateral level — although it is completely understandable that the mid-ranked powers would also want to be adequately consulted and help shape the deals that are forged so that their national interests are adequately taken into account.  Such an approach, overall, would symbolize recognition that the countries in the G20 are going to have to “move together,” as another CIGI commentator has emphasized.  

For those who support the G20 process, it is important to do so in a manner that avoids damaging the new-found legitimacy of this global summitry process.  Its members can avoid this danger by: staying focused on delivering tangible results on financial crisis management; building on the new consensus on imbalances that is being brokered by the great powers; offering innovative solutions for further refining the accommodations that are reached among the few, in order to ensure appropriate burden sharing; and avoiding the temptation of excessive expansionism. 

The G20 leaders’ process is at an important crossroad in its development. A measure of self-restraint is key to ensuring the continuing success of this innovation in global summitry.

Gregory Chin is a senior fellow at The Centre for International Governance Innovation in Waterloo, Ontario and assistant professor of political science at York University in Toronto.