This blog has been posted in FPA’s European Union Blog and Latin America Blog.
The G20 started off where everyone expected, getting the fiscal houses in order of the United States and European Union with inputs from multinational financial institutions, the UK and as a mediator and G20 and between the BRICs, advanced economies, significant developing nations, the EU and US, the Canadian delegation who pushed for a final agreement on fiscal austerity for all G20 members. Canadian Prime Minister Stephen Harper opened the G20 meetings with a speech, focusing on financial reform where he stated:
During the meetings, the goals of the G20 host and the main divisions between the EU and US were surprisingly agreed upon, accommodating between the US strategy to pump stimulus into the local economy, and the EU plan to cut deficits by cutting public expenditures. Some suggested that the US took a proactive approach and set goals to cut their public spending in order to create a stronger basis for international financial reforms between advanced economies so divisions could be polished away and goals could be agreed upon by the G20 delegates. The US position to push stimulus spending was curbed in order to form a fiscal strategy that the US and EU could use as a guideline, agreeing to half deficits by 50% in advanced economies over the next three years and agreeing to reduce stimulus when each country felt it would cause more long term debt that actual market stimulus. In the final G20 Declaration on the Toronto Summit, the delegates set guidelines to:
With a greater degree of detail, the G20 also focused on financial sector reform on the tail end of strategies to quell the collapse of the Euro and the US’ recent bill on Financial Reform. Actions to produce a more balanced and stable global financial systems with transparent institutions and measures will be key to halving the deficits and preventing another economic collapse in advanced economies. The EU and US advanced the proposal of a Bank Tax for advanced economies pre-G20 and for those economies who wished to have a pool of funds that banks could use as an internal mechanism for industry bailouts. A opt out of the Bank Tax was pushed by Canada, leading those BRICs and other “stable” economies so that those systems that were able to withstand the economic crisis were able to maintain their strong financial industry rules. Keeping the financial industry and markets transparent and healthy, and limiting the need for public funds to be used in any future bailouts was the principal focus of the G20, as stated in the Declaration: “…implementation of strong measures to improve transparency and regulatory oversight of hedge funds, credit rating agencies and over-the-counter derivatives in an internationally consistent and non-discriminatory way.” The focus of the G20, peppered with declarations of growth and sustainability and assistance to Haiti was purely a meeting to streamline and coordinate public fiscal reforms and secure a healthy financial industry that will be unable to erode markets and the world economy without a great amount of effort and lack of transparency.
Like all summits of a similar nature, guidelines for future international cooperation and reforms can only be solidified after the meetings, where local legislatures and political measures to codify the agreements at summits can become hard policy. While there are often protests and violence, face-to-face meetings to develop policies between often very different nation states was always a necessity and will not come to a halt dependent on special interest groups or violent activities at summits. Financial reform and debates on how to create an effective stimulus had lead to a good number of face-to-face meetings beyond the normal summit schedule since 2008 and will be a mainstay of public reforms and financial industry reforms as long as debt strangles advanced economies. What the G20 shows is that the US and EU are well aware that they can do more working together to reduce debt and codify financial industry transparency than separately, as the markets do not discriminate between them and they do not exist in financial isolation. Advanced economies such as the US and EU also realise that a G8 may become obsolete, and working with their colleagues in the BRIC nations to create frameworks for sustainable development and address nuclear issues is preferable than to alienate friend’s across the pond and in mega-economies in the long run. Funding and development may also come into play in issues surrounding aid and trade barriers as well, to which G20 nations are needed in order to pull those advanced economies out of debt. Advanced economies however also dominate the global financial system, and while countries like Canada and Brazil and China did not suffer as much as the US or EU in 2009, they did indeed suffer, and without a regulated and transparent global financial industry, markets will always react to an unstable Greece and topple a currently like the Euro or even the US dollar and perhaps the Yuan. Halving debt by 2013, even for Mr. Obama, will be exceedingly difficult, but for those G8 members and those in the G20 it is the last option and a necessity for all countries that are part of the international economic system. Thank you for reading the FPA during the G8 and G20 Summits!