The G20 gathering in Los Cabos, Mexico, is anxious to get global growth going by all means. For the fourth successive time, Europe is central to the group’s consideration. This time, however, it isn’t just prolonged uncertainty about the Euro zone’s future and its destabilizing influence that worries the group. What makes matters more serious is that erstwhile propellers of growth such as China and India, who are significantly exposed to the region, are now faltering. With the growth-austerity tradeoff reaching a tipping point, where growth impulses can be sourced from is the foremost concern of the G20.
The most important item on the agenda is to extract a more systematic policy direction from the leaders of the Euro zone. That’s ironic, in a sense. In its earlier incarnation of the European Monetary System, the Euro zone was the world’s only, and possibly the most successful, example of macroeconomic coordination and occasional policy agreements, as Stanley Fischer once noted. In comparison, the G20 is a more heterogeneous grouping of the world’s major advanced and emerging economies to achieve international economic and financial cooperation on important matters. It is also now in danger of becoming more amorphous by its numerous forays on the side: a B20 (a business grouping), Think-20 (intellectuals from think-tanks), Y-20 (youth) and now even Rethinking-G20 itself! This above all, illustrates the difficulties of achieving systematic macroeconomic coordination on a large scale; international differences in policy goals can become too diverse and too large to translate into policy agreements.
The G20 was able to launch a coordinated macroeconomic stimulus in response to the global financial crisis in 2008-09. But loosening purse strings is politically easier than belt-tightening, which is where matters rest for most countries at the moment. This includes emerging economies such as India, a star exporter of global demand in the post-crisis years. Therefore, countries such as China that still have some fire left in them assume importance for the G20’s objective of reinvigorating global growth. Wafting reports indicate that at least some of the group’s effort will concentrate upon coaxing surplus countries like China to now boost the global economy.
That might not be easy as China is grappling with a slowing economy, pressures arising from some prolonged economic distortions and political churn; moreover, it has obliged far more than the United States, its counterpart in the global imbalance, by significantly revaluing its currency. Along with other nations of the BRICS grouping, China also has another grouse: The BRICS have substantially capitalized the IMF’s financial firewall for use if the crisis in Europe spreads any further. But they want greater representation and voting power in the multilateral institutions, where the US and Europe still dominate despite waning economic strength. The promised reform of the international financial architecture - also a key objective of the G20 and hence, another yardstick for measuring its success - has not really come about.
In this light, it would be an achievement if the summit can conclude with anything more than a routine reaffirmation of the G20’s commitment to sustainable global growth.
Renu Kohli is a macroeconomist based at ICRIER, New Delhi; she is a former staff member of the International Monetary Fund and Reserve Bank of India.