Over 11-13 June, G7 leaders are meeting in Cornwall, UK. This gathering highlights renewed G7 vigour and clout, with a UK presidency committed to action, the first public international outing for multilateralist President Joe Biden and increasing US and European concerns about Chinese and Russian behaviour.
Meanwhile, one hears little about the G20.
It wasn’t supposed to be this way. Amid the 2008 financial crisis, G7 leaders and finance ministers realised they no longer had the heft to manage the world economy alone. Emerging markets, symbolised by the BRICS countries (Brazil, Russia, India, China and South Africa), had become a force unto themselves. The G20 Pittsburgh summit in September 2009 famously declared the G20 was ‘The premier forum for international economic co-operation’. The G7 in turn was to become an informal body.
- The years between the 2008 financial crisis and pandemic were hard on G7 economies but harder on emerging markets, with the exception of China. The heady outlook for emerging markets, especially for Brazil and Russia, was dashed.
- The West’s relationship with China fundamentally changed. In the run-up to the creation of G20, the West was heavily focused on engagement with Beijing, seeking to manage China’s rapidly accelerating global footprint. But engagement has been replaced by strategic competition. President Xi Jinping pushed China’s economy in a statist direction and China’s actions in Hong Kong, the South China Sea and Xinjiang, in addition to Xi’s efforts to become ‘president for life’, unfavourably impacted the West’s view of China and its rise. Meanwhile, Russia was tossed out of the G8 following President Vladimir Putin’s Crimea invasion and authoritarian, aggressive behaviour.
- The G20 is large and unwieldy. While there may be logic to the G20 as an economic/financial grouping, the political case is less compelling. Aside from wishing for a greater role in global governance, it’s unclear what BRICS have in common.
- The last decade witnessed the advent of major cybercrimes and rising national security threats from technology as key issues. China and Russia are seen as malign forces on these fronts in the US and Europe, undermining G20 co-operation.
In the G7’s heyday before the 2008 financial crisis, economic and financial co-operation was strong — within limits. When faced with a synchronised economic and financial crisis, countries can coordinate policies. But in normal circumstances, the scope for macroeconomic coordination is limited. Cyclical conditions vary.
A US president can’t credibly commit to a fiscal course when Congress holds budgetary purse strings. Germany’s macroeconomic culture is different to America’s, and emerging markets face their own challenges. Major central banks are independent – their mandates apply at home. Further, Europe and the US have different self-interests and priorities, especially after the Donald Trump administration sowed considerable mistrust.
But in other realms, G7 cohesion was and remains powerful. The nations often work collectively in providing debt relief to heavily indebted poor countries, such as through the Multilateral Debt Relief Initiative, and managing international financial institutions in countries facing debt. The bulk of major globally interconnected financial institutions are in G7 countries and they co-operate on financial markets. They collectively fought terrorist financing and money laundering and have shared interests in fighting cybercrime. Their cohesion was just underscored in the recent G7 finance ministers’ global tax agreement.
When G7 countries are united, they can provide a potent platform for advancing progress in the G20. If the other G20 countries disagree, they can block the G7. But a united G7 is more easily capable of pushing forward a global agenda.
The G7 countries represent democracy, believing in multilateralism and a rules-based international order. China’s rising authoritarianism and Russian belligerence have underscored this reality, heightening the G7’s purpose. Trump challenged that vision, but Biden has clearly returned to it – a critical point that will be well underscored in Cornwall.
This is not to say that the G20 isn’t relevant. Emerging markets constitute a growing share of the global economic and financial system. Global objectives – greening the environment, overcoming the pandemic – require close work between developed and emerging markets. The G20 can be a useful forum for discussion, for leaders and ministers to meet counterparts and for advancing collective challenges, even if it remains unwieldy.
Where does this leave global economic management as the G7 meet in Cornwall? As before, in flux. The G7 has found new legs and purpose, even if its members have their own internal differences. But emerging markets still need to be involved in managing the global economy. Regardless of the G7 or 20, the US and China still need to find ways to engage, even if they are strategic competitors. To strengthen G7 democratic cohesion, new actors may be brought ad hoc into the leaders discussions – such as Australia, India and South Korea, who will attend the Cornwall G7 summit.
Whether through G7, G20 or bilaterally, there is continued scope for shifting coalitions on any given topic. Today’s architecture is neither tidy nor strong, but it is not rudderless. The G7’s role is undergoing a revival, underpinned by its collective democratic and multilateralist roots. Hopefully, Cornwall will be a success.
Mark Sobel is US Chairman of OMFIF.
Image credit: WPA Pool/Pool, Getty Images Europe