G7 finds new goal as G20 takes a step back

From June 11-13, G7 leaders meet in Cornwall, UK. The rally highlights the renewed vigor and influence of the G7, with a British Presidency engaged in action, the first public international outing of multilateralist President Joe Biden and growing concerns from the United States and Europe over the Chinese and Russian behavior.

In the meantime, we hear little about the G20.

It wasn’t meant to be that way. In the midst of the 2008 financial crisis, G7 leaders and finance ministers realized they no longer had the clout to run the global economy on their own. Emerging markets, symbolized by the BRICS countries (Brazil, Russia, India, China and South Africa), had become a force on their own. The G20 summit in Pittsburgh in September 2009 declared the G20 to be “the premier forum for international economic cooperation”. The G7 was in turn to become an informal body.

What happened?

• The years between the 2008 financial crisis and the pandemic have been tough for the G7 economies, but tougher for emerging markets, with the exception of China. The heady outlook for emerging markets, especially Brazil and Russia, has been shattered.
• The West’s relationship with China has fundamentally changed. As the creation of the G20 neared, the West has focused heavily on engagement with Beijing, seeking to manage China’s rapidly accelerating global footprint. But engagement has been replaced by strategic competition. President Xi Jinping has pushed the Chinese economy in a state-run direction, and China’s actions in Hong Kong, the South China Sea and Xinjiang, in addition to Xi’s efforts to become “president for life,” have had an impact. adverse impact on the western view of China and its rise. Meanwhile, Russia has been kicked out of the G8 following President Vladimir Putin’s invasion of Crimea and authoritarian and aggressive behavior.
• The G20 is large and bulky. While there may be logic in the G20 as an economic / financial grouping, the political argument is less convincing. In addition to wishing for a greater role in global governance, it is not clear what the BRICS have in common.
• The last decade has seen the advent of major cybercrimes and growing threats to national security from technology as key issues. China and Russia are seen as evil forces on these fronts in the United States and Europe, undermining G20 cooperation.

At the height of the G7 before the 2008 financial crisis, economic and financial cooperation was strong – within limits. In the face of a synchronized economic and financial crisis, countries can coordinate their policies. But under normal circumstances, the scope of macroeconomic coordination is limited. Cyclic conditions vary.

A US president cannot credibly embark on a fiscal path when Congress is in control of the fiscal purse. Germany’s macroeconomic culture is different from that of the United States, and emerging markets face their own challenges. The big central banks are independent – their mandates apply at home. In addition, Europe and the United States have different personal interests and priorities, especially after the Donald Trump administration sowed considerable mistrust.

But in other areas, the cohesion of the G7 was and remains strong. Nations often work collectively to alleviate the debt of heavily indebted poor countries, for example under the Multilateral Debt Relief Initiative, and to manage international financial institutions in indebted countries. Most of the major globally interconnected financial institutions are located in the G7 countries and cooperate in financial markets. They have collectively fought against terrorist financing and money laundering and have common interests in the fight against cybercrime. Their cohesion has just been underlined in the recent global tax agreement of the G7 finance ministers.

When the G7 countries are united, they can provide a powerful platform to advance progress within the G20. If the other G20 countries don’t agree, they can block the G7. But a united G7 is more easily able to push forward a global agenda.

The G7 countries represent democracy, believe in multilateralism and a rules-based international order. China’s growing authoritarianism and Russian belligerence have underscored this reality, bolstering the G7 goal. Trump challenged this vision, but Biden clearly returned to it – a critical point that will be well underlined in Cornwall.

This does not mean that the G20 is irrelevant. Emerging markets represent a growing part of the global economic and financial system. Global goals – greening the environment, overcoming the pandemic – require close work between developed and emerging markets. The G20 can be a useful forum for discussion, for leaders and ministers to meet with their counterparts, and for advancing collective challenges, even if it remains onerous.

Where does that leave global economic management as the G7 meets in Cornwall? As before, in motion. The G7 has found new legs and new goals, although its members have their own internal differences. But emerging markets have yet to be involved in managing the global economy. Regardless of the G7 or the 20, the United States and China have yet to find ways to engage, even though they are strategic competitors. To strengthen the democratic cohesion of the G7, new actors could be brought ad hoc in the discussions of leaders, such as Australia, India and South Korea, who will participate in the G7 summit in Cornwall.

Whether through the G7, the G20 or bilaterally, there is room for maneuver for changing coalitions on any given topic. Architecture today is neither orderly nor solid, but it is not rudderless. The role of the G7 is experiencing a renewal, supported by its collective democratic and multilateral roots. Hopefully Cornwall will be a success.
Source: OMFIF

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