G20 summit marked by high hopes for international cooperation

Sources
Financial Times: New body takes on economic leadership, Skepticism over G20 pledge of new era, Full G20 communique
New York Times: Leaders of G20 vow to reshape global economy

As the recent G20 summit came to a close in Pittsburgh, many leaders voiced their hopes for a new era of global economic cooperation. U.S. president Barack Obama praised G20 members for real, tangible cooperation, and said that the financial system of the future “will be far different and more secure than the one that failed so dramatically last year.” Members addressed a wide variety of issues at the Pittsburgh summit, including a timetable for regulatory reform, improved guidelines for bankers’ pay and a new global framework for balanced economic growth.

One of the most noteworthy aspects of the summit was a marked shift in many countries’ views toward international oversight. The concept of national sovereignty has often been a stumbling block for international organizations, in economics and in many other contexts. In Pittsburgh, the G20 made plans for a more balanced global economy and established multiple priorities: the United States will need to increase its savings rate and trim its trade deficit while countries like China, Japan and Germany will need to decrease their dependence on exports and promote higher rates of consumer spending and domestic investment. In a remarkable step toward true international cooperation, each country agreed to submit these balancing policies to a “peer review” process, as well as to monitoring by the International Monetary Fund. Many attribute this change of heart to the severity of the recent crisis. The rest of the world was so shocked by the financial crisis, emanating from the United States, that they may be reevaluating what is in their best interest. Allowing international oversight may mean giving up a degree of sovereignty in economic policymaking, but that concession may be well worth the price if it can prevent another severe financial crisis.

Another important shift occurred at the Pittsburgh summit— the leaders formally announced that global economic discussions would shift permanently from the Group of 7 (the United States, Britain, France, Canada, Italy, Germany and Japan) to the Group of 20 (which includes China, India, Brazil, South Korea and South Africa and others). This change, believed by some to be long overdue, reflects the shifting dynamic of the global economy and the increased importance of fast-growing developing nations. The G20 also reemphasized their commitment to give China and other emerging economies a larger share of voting power at the IMF and the World Bank. Some analysts have voiced criticism over the potentially “unwieldy” nature of a 20-member group, while United Nations secretary general Ban Ki-Moon visited Pittsburgh to remind leaders that 85 percent of the world’s countries are not represented by the G20. Although current member nations do account for 85 percent of global income, group membership will remain an important issue as the global economy continues to shift.

The summit’s formal communique articulates clear priorities and cooperative goals. However the agreements endorsed by G20 leaders on Friday were for the most part non-binding pledges. President Obama and other leaders have hailed a new era of cooperation. They must now meet the very real challenge of working together to build a better global financial system.

Discussion
1. The G20 member nations have agreed to require higher levels of capital reserves at banks and other financial institutions. However the communique includes no specific numbers on how high the capital reserves must be. Different countries have diverse approaches to this issue (Japan’s banking system, for example, is traditionally more conservative than those of most European countries). Should the G20 establish a single, one-size-fits-all requirement for capital reserves, or should there be room for variation in the standard?
2. In response to the critique that a 20-member group is too unwieldy to manage global economic discussions, some argue that the real work will be done in sub-committees. What are the potential benefits of allowing sub-committee work within the context of the G20? Are there disadvantages?