Thursday

1st Oct 2020

G20 adjusts to new economic landscape

Leaders from the Group of 20 industrialised and developing nations meeting in Pittsburgh, USA, on Thursday night (24 September) appear to have struck a series of deals that recognise the changed economic landscape of the 21st Century.

Agreement was reached on a new framework to reduce world imbalances and on the need to reform voting rights within the International Monetary Fund. A decision was also taken to recognise the G20 as the primary forum for economic decision-making.

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  • Leaders will thrash out the final details of agreements on Friday (Photo: 1Sock)

The package of deals constitute a major success for US President Barack Obama, and are set to grant a greater voice to developing countries on the international stage.

Several thorny issues still remain for Day Two (Friday) of the talks however, with discussion on climate change, banker bonuses and bank capital requirements likely to produce heated debate.

Separately in Brussels, a meeting of NGOs said the response to the crisis by world leaders had merely been more of the same, while instead a new economic paradigm based on lower consumption was needed.

Reducing imbalances

The G20 deal to prevent future imbalances - referred to as a "global compact" in draft communiqués - will involve leaders setting the global economic agenda together, with members subsequently monitoring each other's progress in achieving these goals.

The aim is to prevent the build-up of trade and budget imbalances that many economists have identified as a key factor behind last year's meltdown.

Under the deal, the Chinese will continue their efforts to boost domestic demand, while the world will reduce its reliance on US consumers. The US government will reduce its borrowing overseas and the EU will encourage further investment.

The IMF is to play a co-ordinating role in the process, but questions have already arisen as to how effective this system of peer review will be, given the lack of formal sanctions for non-compliance.

IMF reform

A deal also appears to have been struck on IMF reform.

"We've arrived at an agreement tonight on reform of the IMF to give underrepresented countries more of a say in its governance," European Commission President Jose Manuel Barroso said late on Thursday night.

The agreement – exact details of which remain unclear – is likely to see a five percent shift in voting rights from industrialised to developing nations.

Currently, the split in voting power is 57 percent for industrialised countries and 43 percent for developing countries. The shift would make the split closer to 50-50.

French and UK officials initially baulked at the US proposal, which also includes a cut in the number of IMF directors to 20 from 24, as European states are likely to bear the brunt of the losses.

At present, China has 3.7 percent of the vote, giving it less clout than France's 4.9 percent, despite the fact that the Asian giant's economy is one and a half times the size.

Brazil carries 1.4 percent of the voting power, less than Belgium's 2.1 percent.

Rise of the G20

Friday's final communiqué also looks set to confirm the G20 leaders' meeting as the primary forum for economic decision-making, with the Group of Eight rich countries now likely to meet only in the sidelines of other meetings.

Since the crisis began, the G20 leaders' meeting has become the de facto economic agenda setting forum, with the first ever being held in Washington last November, shortly after the fall of the Lehman Brothers bank.

Since 1999, G20 finance ministers have met on a regular basis, but leaders of rich nations had opted to meet in the G7/G8 format.

A G8 reunion in Italy this year involved multiple side meetings – the G-8 plus Egypt for example - prompting Mr Obama to declare that the system had to be streamlined.

Next year G20 leaders will meet twice, first in South Korea – the next chairman of the group - and in Canada in the second half of the year.

Outstanding issues

On Friday, the Financial Stability Board is set to present plans on bank capital requirements, with potential disagreement betweent the EU and the US in this area.

The Europeans are also adamant that a new framework for banker remuneration be agreed. On Thursday, Swedish Prime Minister Fredrik Reinfeldt – whose country currently holds the EU presidency - said he was "concerned that banks seemed to be returning to pre-crisis remuneration."

French President Nicolas Sarkozy has threatened to walk out if a deal is not reached.

Tough new language on tax havens is also expected in the meeting's final document, while much remains to be done in the area of climate change.

"We are very worried about the situation on climate change negotiations," said Mr Reinfeldt, who attended a United Nations meeting on the subject earlier this the week.

"They are slowing down. They are not going in the right direction. This is not acceptable."

EU countries stuck on rule of law-budget link

Divisions among EU governments remain between those who want to suspend EU funds if rule of law is not respected, and those who want to narrow down conditionality.

MEPs warn of 'significant gaps' in budget talks

The budget committee chair said the European Parliament expects tangible improvements to the package in its talks with member states - while the German minister argued that the EU leaders' deal was difficult enough.

Top EU officials urge MEPs give quick budget-deal approval

MEPs criticised the EU deal on the budget and recovery package clinched by leaders after five days of gruelling talks, saying it is not enough "future-oriented", and cuts too deeply into EU policies, including health, innovation, defence and humanitarian aid

EU Parliament gears up for fight on budget deal

European parliament president David Sassoli said certain corrections will have to be made in the budget, citing research and the Erasmus program for students, calling the cuts "unjustified".

EU leaders agree corona recovery after epic summit

After gruelling five-day talks, EU leaders agreed on €390bn in grants and €360bn in low-interest loans to hardest-hit member states - after much opposition from the Dutch-led 'frugal' bloc of countries.

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