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By Martin Edwards
As the world economy continues to crumble, some world leaders think they can address the prospect of a deepening global slump with a G-20 meeting.
This Nov. 3-4 meeting comes after months of headlines detailing country after country with problems ranging from debt default to the collapse of consumer confidence. In the U.S., we’ve seen the President and Congress fail to cooperate, and a nearly unthinkable S&P credit downgrade. In Europe, concerns about Italy, Spain, and Greece continue to threaten to unravel the Euro.
But the truth is a G-20 meeting won’t help solve world economic problems. Unlike past summits, there’s no potential for a win-win deal that involves shared sacrifice in order to end the financial crisis and jump-start the world economy. The G-20 meeting will not change the positions for those involved.
Summitry has a notable history in diplomacy, and the act of bringing leaders together to address important issues can give rise to innovative solutions. Sometimes this is easy to do. The London summit in 2009 led to the rebirth of global Keynesianism and a new lease on life for the International Monetary Fund. At other times, the situations are more daunting. In these cases, summits work by allowing leaders to broker deals privately, as countries agree to do things they would rather not to gain the cooperation of others. In the Bonn summit of 1978, Germany and Japan agreed to economic stimulus after the Carter administration pledged to remove oil price controls and be more vigilant in controlling inflation. For summits to be successful, then, there has to be a deal that countries can agree to. This time the G-20 countries have already proven incapable of working together.
Just as at the London summit, a successful G-20 deal would involve global stimulus, but domestic politics are sure to stand in its way. The Europeans are already fearful of additional sovereign meltdowns. While last week’s deal seems to restore confidence in Europe’s ability to guard against further economic collapse, it does not signal that the problems on the continent are by any means resolved. After many false starts and weeks of negotiating, the Europeans finally got a deal done. Leaders of these countries are going to be loathe to consider additional economic stimulus, which might in turn put their own credit ratings at risk. Thus, the deal on Greece and bank capitalization likely represents the high water mark for European cooperation in getting the world economy restarted. Their inability to address the potential for a financial meltdown in Spain and Italy means that any stimulus is clearly off the table.
As we’ve seen with the quiet death of the President Barack Obama’s jobs bill, the political climate in Washington borders on paralysis. So not only are the OECD countries bringing little to the table, we also cannot rely on the new G-20 members to make additional sacrifices as well. Because the emerging markets are already growing fast, they have to be on guard for signs of their economies overheating, which additional government spending would surely produce. The Brazilians are worried about the adverse effects of capital inflows, and the Chinese are worried about inflation. The Chinese may be tasked with buying bonds to help bolster the European bailout fund, but whether they’ll do so without corresponding concessions in return is an open question. So the countries that are growing can’t speed up faster without suffering adverse consequences, and there’s little the developed world can do to offset them. Across the globe, there’s no grand deal in the offing.
This isn’t to suggest that the summit will be pointless. There may still be some deal to further help prop up the euro. But for those of us looking for bold action by the G-20 to kickstart the economies of Europe and the U.S. will have to look elsewhere. “Growth-friendly fiscal consolidation” is the new buzzword; roughly translated, it means “do more with less.” In the space of three years, we’ve seen the rebirth and decline of Keynesian doctrines in both the United States and Europe.
In a sense, the G-20 already presaged its moribund future in the response to the drop in the Dow in August of this year. The finance ministers and central bank governors spoke by phone and pledged to “cooperate as appropriate,” but no joint action ever came out of that phone chat. Unfortunately for all of us, given the domestic constraints of G-20 members, there’s no chance of countries working together to pull the world’s economies out of the doldrums.
Martin Edwards is an Associate Professor at the John C. Whitehead School of Diplomacy at Seton Hall University.
[Photo courtesy of Flickr user President of the European Council]