The creation of the Group of Twenty has been the most profound development in global governance
since the end of the Cold War.
Three years after the institution's founding, it makes sense to take a look at where it's
been, and where it might be going.
Hi.
I'm Stewart Patrick, and on this installment of The Internationalist, we'll be looking
at five things you need to know about the Group of Twenty.
The first thing you need to know is that the Group of Twenty has actually been around for
a while.
In the wake of the Asian financial crisis in the late 1990s, Treasury Secretary Larry
Summers decided it would make sense to group together finance ministers and central bank
governors of the world's twenty most important economies.
Now, this operated at a pretty low level, though, for quite some time, out of the public
gaze.
But then in November of 2008 in the depths of the global financial crisis, President
George W. Bush called the world leaders together to Washington in an extraordinary summit to
try to save the world from depression, and they succeeded.
Over the course of several summits, they injected huge quantities of liquidity into the global
system, and prevented a meltdown that many were expecting and avoided another great depression.
The second thing you need to know about the Group of Twenty is that things have gotten
a lot more complicated now that global economic stability has been restored, and national
interests are now beginning to reassert themselves.
So you've got countries moving in different directions.
One of the major controversies that we face is the question of how to restore some balance
in the global economy and to deal with what have become structural imbalances.
Now the most important of these is the imbalance between countries that save too much, and
therefore build up huge currency reserves, and those countries that save too little,
and therefore build up huge debt.
In the first category you have countries like China in particular but also Germany; in the
second category, the United States stands out as Exhibit A.
The question is: how should you apportion the burden of adjustment to get things more
equal?
The third thing that you really need to know is what the G20 has done is try to push reform
in other institutions to try to get them to reflect the world as it exists as opposed
to the world of 1945 when those institutions were created.
One of the big things that the United States has been pushing, and rather successfully,
has been to change the governance arrangements and the weighted voting in the International
Monetary Fund to reflect the rise of new countries like China, India, Saudi Arabia, and others.
A lot of that has to come at the expense of the Europeans, whose chairs on the executive
board of that institution and also whose voting weights or quotas have to go down.
So it's been tremendously controversial but there has been major progress made.
Another point of progress has been in financial regulation.
Now, it can become incredible difficult to try to harmonize financial regulations across
the G20 countries, because of course they have twenty different banking systems but
nevertheless, there have been some major strides in trying to monitor and regulate the most
systemically important financial institutions, that is, those banks that are too big to fail.
And finally, the G20 has done a great job in fighting protectionism, which a lot of
people thought was going to break out in a rampant fashion at the height of the global
financial crisis.
In fact, we've seen very little increases in discrimination whether in tariffs or non-tariff
barriers, and that's something we can all be thankful for.
The fourth issue is something people don't really know much about, but it's the fact
that the G20 has really empowered the International Monetary Fund.
Now, before the financial crisis, people had basically given up the fund for dead because
it didn't seem relevant to the major economic problems that the world faced.
But in the wake of the financial crisis, suddenly it's been given new life.
Its coffers have been replenished by the G20 so that is actually has a bigger warchest
to work with when countries get into trouble, and it's actually been given some authority
to act as a watchdog, not only over other countries, but over the G20 members themselves.
This remains controversial.
Countries like China really worry about this being an infringement on their sovereignty
but the fact that the G20 has allowed the IMF to monitor the behavior of its own members
and act in a surveillance fashion is really a reflection that we just can't take for granted
that countries will do what they say that they're going to do.
The global financial system is too fragile to operate without a watchdog.
Now, the final and biggest point that you need to know is that there's a big, big issue
about what the scope of the G20 should be going forward.
Should it stick to its knitting, which is something most G20 leaders want it to do,
and avoid the sort of mission creep that has affected the G7 and G8 before, or should it
gradually expand the scope of its activities?
Now, I'm placing my bets on the fact that when you get twenty world leaders into a room
together, it's almost impossible to limit the agenda.
I think it's inevitable that as the G20 proceeds, that it's going to start taking on issues
of climate change, of high politics such as issues like the Arab Spring, nuclear non-proliferation,
counter-terrorism, you name it, because it's just going to be an irresistible format for
leaders.
What do you think?
Are you willing to take my wager?
And if you do believe that it's going to expand its agenda, what sort of issues do you think
the G20 should take on?
Should it, for instance, take on the issue of Iran and its nuclear ambitions?
We'd love to hear what you have to think about these things.
So please weigh in on The Internationalist blog on CFR.org.