Against significant odds, the Group of 20 is moving closer to its goal of rebalancing the global economy.
In a surprising show of faith in an institution that has met only four times, leaders from countries as disparate as Germany and Saudi Arabia agreed Sunday in Toronto to subject their domestic economic programs to peer review within the G20.
By this fall’s Seoul summit, countries have promised to explain in some detail how their domestic policies are helping to achieve the G20’s goal of reducing the excessive mismatches in spending and saving that exacerbated the financial crisis. Then, with the help of the IMF and its expertise in economic modelling, the other members will assess whether each partner is doing enough.
The commitment is historic.
The promise by each leader to agree to put his or her cards on the table adds a level of transparency and credibility that the process lacked until now. While economic co-ordination has been tried before, it has been with lesser officials or the International Monetary Fund as the arbiter. Now, the accountability rests at the highest levels. Where previous failures could be blamed on bureaucratic deadlock, global economic co-operation is now a political imperative in the hands of presidents and prime ministers.
The increased transparency could even encourage competition among members to implement policies that curry favour with investors.
Since the review remains a voluntary exercise without penalties, success will depend on G20 members taking the process seriously, both by submitting credible policies and showing the courage to offer tough, but fair, criticism. Given how these countries allowed the global economy to get so out of whack in the first place, there is reason to be skeptical they have what it takes to deliver, especially as the economy improves.
Still, “it’s a pretty significant step,” said Tim Adams, managing director at the Lindsey Group consultancy in Fairfax, Va., and a former undersecretary of international affairs at the U.S. Treasury Department. “It creates the potential that this will become a serious exercise.”
Going into Toronto, it was unclear whether the G20 was fully committed to their September pledge at the summit in Pittsburgh to create a forum in which they would shape their domestic policies in way that would ensure “strong, sustainable and balanced” global economic growth.
U.S. President Barack Obama waves as he stands with Canadian Prime Minister Stephen Harper (L), South African President Jacob Zuma and Russian President Dimitry Medvedev (back R) during a group photo at the G20 Summit in Toronto June 27, 2010. — REUTERS/Chris Wattie
