A Disappointing Response to Global Dangers
from G20 Finance Ministers and Central Bank Governors at Chengdu
John Kirton, Co-director, G20 Research Group
July 24, 2016
The G20 finance ministers and central bank governors, meeting in Chengdu, China, on July 23-24, 2016, have now collectively offered their conclusions to an anxious, waiting world. Their message is a disappointment to those who correctly understand that they need bold action, rather than more analysis, to address the urgent challenges they face across a wide array of fields.
The G20 participants admirably began by accurately recognizing reality, highlighting the seven dangers the now facing the world from fluctuating commodity prices, low inflation, financial market volatility, political conflicts, terrorism, refugee flows and British voters' decision to leave the European Union. Yet they then left it to their leaders, who will meet five weeks later in Hangzhou, to consider their recommendations, which contained little new on these key issues.
On the central issue of the need for coordinated fiscal stimulus to boost global growth and confidence, they offered no slivers of sunshine for their leaders. Instead, they immediately responded to the gloomy list of seven dangers with the familiar old formula to put monetary policy first, structural reform second and fiscal policy last, even if the fiscal policy was declared equally important as structural reform. In its substance, fiscal policy would merely fine-tune existing policies rather than add new stimulus. It would focus on infrastructure investment (which market participants know would help only in the medium term) and leave it to each G20 member to decide what to do according to its own circumstance. There was no recommendation to use coordinated, new fiscal stimulus, even a modest one from the several members in a position to act. Between the identified global risks and the G20's recommended response, there was a glaring gap.
On the immediate issue of Brexit, the G20 finance ministers and central bankers did little better. They highlighted the problematic global consequences, but confidently left it to the Europeans to solve by themselves. No new trade liberalization measures were promised.
On all else, the participants largely offered an approach of wait, watch, welcome and leave it to other international institutions to do the work. Only on the inevitably slow-moving issue of domestic financial regulation and supervision did they make meaningful additions, notably on asset management and other market-based financing, correspondent banking and principles for digital financial inclusion.
Climate change and the environment were left to last, as an unlinked afterthought not connected directly in any way to the economic, finance, social and security subjects already addressed. From a city in the heart of President Xi Jinping's proclaimed ecological civilization, the communiqué passages on green finance were weak and presented in the passive tense, with no promise that the G20 itself or its members would act. Similarly, on ratifying and implementing last year's Paris Agreement on climate change, G20 members promised to encourage others to act, rather than committing that they themselves would do so. Only France among all the G20 members has ratified the agreement so far. Climate change was explicitly assigned to next year's German G20 presidency, suggesting that the Hangzhou leaders themselves would take a pass, even as the world continues to warm to historic highs.
The final paragraph on phasing out fossil fuels subsidies by the medium term did not note that this deadline has now passed, since G20 leaders, including U.S. president Barack Obama and German chancellor Angela Merkel, made that promise at Pittsburgh in September 2009. And by limiting the promise to subsidies that encourage wasteful consumption, they exempted the production subsidies that currently generate stranded assets at taxpayers' expense.
Overall, the Chengdu communiqué made almost no link to the ambitious priorities for the Hangzhou Summit that President Xi had set when he assumed the G20 chair in December 2015, or to the list of ten anticipated deliverables that foreign minister Wang Yi identified in May 2016. With G20 finance ministers and central bank governors behaving more as policy analysts than as global governors, it will be left up to the leaders themselves as Hangzhou, even more than usual, to achieve what President Xi wants and what China, the G20 and the full global community badly need.
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John J. Kirton, is director of the G7 and G8 Research Group, and co-director of the G20 Research Group, the Global Health Diplomacy Program and the BRICS Research Group. He is also a Non-Resident Senior Fellow at the Chongyang Institute for Financial Studies at China's Renmin University. A professor of political science, he teaches global governance and international relations and Canadian foreign policy. He has advised the Canadian and Russian governments, the World Health Organization and the Pan American Health Organization on G7/8 and G20 participation and summitry, international trade and sustainable development, and has written widely on G7/8 and G20 summitry. Kirton is the author of many chapters and articles on the G7, G8 and G20. His most recent book is China's G20 Governance (Routledge, 2016). Other recent books include G20 Governance for a Globalized World (Ashgate, 2012) and (with Ella Kokotsis), The Global Governance of Climate Change: G7, G20 and UN Leadership (Ashgate, 2015), as well as The G8-G20 Relationship in Global Governance, co-edited with Marina Larionova (Ashgate, 2015). Kirton is also co-editor of several publications on the G8, the G20 and the BRICS published by Newsdesk Media, including G7 Japan: The Ise-Shima Summit 2016 and G20 Turkey: The Antalya Summit 2015.
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