Analysis: G20 put to test by uneven recovery
By Brian Love and Caren Bohan
Reuters
TORONTO (Reuters) - Recession made the G20 the main forum for managing the world economy last year. Now, the recovery is putting to the test the new sense of common cause that united rich and developing countries.
Meeting in Canada at the weekend, leaders from the Group of 20 struggled to maintain the solidarity they showed during the worst of the downturn last year, when they pumped trillions of dollars into the economy to prevent an even deeper slump.
"When the house was on fire, we all knew what to do: get a hose," said Angel Gurria, head of the Organization for Economic Co-operation and Development, told G20 leaders at the summit.
"Today, the incipient recovery offers policy choices and policy options. While it is good to have choices, it becomes more difficult to find common ground."
That summed up the challenge the G20 faces as the economy in Asia is roaring ahead but is weaker in the United States and feeble in Europe.
Additionally, the industrialized world is deep in debt and looking for a way out, unlike China and some if not all of the other emerging market economies around the G20 table.
The summit in Toronto exposed issues that are harder to resolve when a lot of countries united under the G20 banner are emerging from the downturn at different speeds and with different priorities.
CHINA AND TRADE
G20 countries initially wanted to formally welcome China's new commitment to move toward a more flexible exchange rate. Many of them hope that will lead to a rise in the value of the yuan and fairer competition in world trade as a result.
At China's request, the G20 removed a line on the matter from the statement issued at the summit.
While Beijing said ahead of the summit that debate about the yuan had no place in international forums, the tractations over a line of praise showed just how difficult it remains for the G20 to address a matter considered key if world leaders are to tackle global economic balances in the longer term.
On free trade, the G20 if anything backpedaled on pledges to press for a multilateral commitment to liberalization under the long-stalled Doha round negotiations.
Last year, the G20 leaders committed in their Pittsburgh communique to pressing for a successful conclusion to the Doha round negotiations by the end of 2010. This time they dropped the date and set no new one.
That, according to European Commission President Jose Manuel Barroso, injected a dose of realism into the communique, given that the divisions over the trade round has prevented a deal for the best part of a decade. But tensions between the United States and China have bobbed back to the surface too.
The U.S. and Chinese ambassadors have traded blame this week at the World Trade Organization over the Doha stalemate.
President Barack Obama told G20 leaders over lunch on Sunday that the Doha proposals as they stood now were not good enough and would need to be changed significantly, officials told Reuters.
PAIN OF DEBT
The G20 leaders committed to a halving public deficits over the next three years as the priority shifts from pump-priming a recession-engulfed economy to slashing the debt the industrialized world is saddled with on the way out.
There too, the different angle G20 countries come from is clear.
Washington and Europe sniped ahead of the summit because of European austerity measures that might stifle the already weak recovery in Europe. But some emerging market countries in the G20 were more blunt with their misgivings.
Europe was "absolutely wrong," Argentine President Cristina Fernandez told Reuters in an interview in Toronto.
"If European countries proceed with their fiscal austerity plans, the global economic turnaround may slow down," said South Korean President Lee Myung-bak, another G20 member.
From a European perspective, the need to show good on fiscal consolidation is urgent after Greece had to seek financial help and euro zone governments were forced to come up with an emergency funding plan for other countries recently.
The debt of the advanced economies of the G20 is roughly three times as large as that of the emerging market members of the grouping, according to International Monetary Fund data.
"Lack of international coordination is disappointing, but not as much as a threat (from debt) at this juncture, Marco Annunziata, chief economist at UniCredit bank said.
G8 NOT ALTERNATIVE
The problem, analysts say, is that the G20 may be unwieldy, but the G8, the forum it is supplanting, is no longer considered representative of a global economy where the balance of power is shifting rapidly to the likes of China or Brazil.
"Part of the problem that exists today among multilateral institutions is that they tend to reflect a post-World War Two distribution of international power. And they therefore lack legitimacy in many quarters of the globe," said Charles Kupchan at the U.S.-based Council on Foreign Relations.
"So then you say, 'well let's fix that' and the way you fix that is you just put a lot more chairs at the table."
Even if getting the G20 to agree on policy is hard, at least it provides a forum for global coordination.
White House adviser Ben Rhodes said that for the past year and a half, the G20 has sought to calibrate "the fine line" over how much stimulus to apply and its timing.
"Frankly, if you didn't have the G20 to work that through we'd be a lot worse off," Rhodes said.
Asked about that risk in Toronto, French President Nicolas Sarkozy vented his frustration at the media's skepticism about the G20.
"As the G20, we represent 85 percent of global GDP. Do you think that it is not useful that we talk to each other? You prefer what, that we argue, that there are trade wars or wars period?" said Sarkozy, who will host a G20 summit in 2011.
"I am always the first to say that sometimes the discussions are long, to get a paragraph into communique is exhausting. When I finish these summits, I feel drained and empty, but it is our duty to participate."
Editing by Chizu Nomiyama
Source: Reuters
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