Finance ministers and central bank governors from the Group of 20 economic powers are set to meet in Paris on Friday and Saturday, kicking off the 2011 season of economic summitry.
The theme for France's G20 presidency is "New World, New Ideas." Not bad, but this would have been better: "No more excuses."
It's a make-or-break year. After five summits in less than three years, the time has come for the G20 to live up to its own hype as the "premier forum for international co-operation." Failure to do so will make prophets of all those who condemned the tens of millions spent on the Toronto summit last year as a colossal waste of time and money.
A lot of time has passed since 2008, when former U.S. president George W. Bush first assembled leaders from the G20, formerly a second-tier grouping of finance officials from rich countries such as Germany and Australia and emerging markets such as China and Brazil. Leaders committed to spend hundreds of billions to reverse the recession. It worked, sort of.
The world economy is growing again, but not in a way that makes anyone feel comfortable. Unemployment rates are still above 9 per cent in the United States and Europe. Inflation is heating up in Asia and Latin America, stoked by surging food and energy prices. Both of these things - unemployment and inflation - are factors in the popular revolts sweeping Arab countries, where high rates of joblessness mixed with rising prices have stirred simmering anger at autocratic regimes. China and other Asian countries are still exporting far more than they import, exacerbating imbalances in global growth.
"The spirit of co-operation so strongly evident across G20 countries in the autumn of 2008 has waned considerably," said Paul Jenkins, the former senior deputy governor of the Bank of Canada. While officials continue to say the right things about reducing elevated unemployment rates and smoothing lopsided growth patterns, "there are clear differences of view regarding roles and responsibilities, and on the desired path of adjustments and the policy actions needed to achieve adjustment," said Mr. Jenkins, who is now a distinguished fellow at the Waterloo, Ont.-based Centre for International Governance Innovation.
French President Nicolas Sarkozy wants to tackle three big subjects: overhauling the international monetary system, improving global economic governance and reducing volatility in commodity markets. These are worthwhile topics; precisely the kinds of questions that the world's premier economic forum should tackle.
There's an emerging opinion that the global economy might be better served by a monetary system that revolves around several reserve currencies, rather than simply the U.S. dollar. Finance Minister Jim Flaherty last year said it was too difficult to bring a couple of dozen officials together quickly when trouble flares, as it did last spring when Greece was on the brink; that appears to be one of the reasons France wants to debate the need for a tighter group to discuss currency issues. Most research shows Mr. Sarkozy's anxiety over the role speculators play in pushing food prices higher is misplaced. Still a debate at the G20 on the subject is worth having if it would settle the matter once and for all.
But there's one problem with this agenda: The G20 hasn't proven it is capable of doing anything besides putting out a fire. The French program amounts to a rebuild of the global financial architecture and the members of the G20, so far, have shown little interest in building. "A host of measures are needed in different countries to reduce vulnerabilities and rebalance growth in order to strengthen and sustain global growth in the years to come," the International Monetary Fund said last month. The G20 has been promising to rebalance the global economy for two years. Its failure to bring about change risks destroying the credibility it gained in the fight against the financial crisis.
"The problem we have is pure political will," Tim Adams, a former under secretary for international affairs at the U.S. Treasury Department, said last week during a panel discussion on the financial system hosted by the International Monetary Fund in Washington.
For the audience's benefit, Mr. Adams ran through the list of the macro risks to the global economy: the U.S. has done nothing significant to shrink its budget deficit; Europe projects annual economic growth over the next decade of a mere 1.5 per cent; and Asian countries refuse to loosen controls on their exchange rates, hampering domestic demand and stoking inflation pressures.
One of the big ideas that the French intend to discuss is making the IMF's administrative unit of exchange - the Special Drawing Right, or SDR - a legitimate global currency. The idea is to reduce the global economy's reliance on the greenback, which might take some of the volatility out of foreign-exchange markets. On paper, this could work; in the real world, the SDR will fly only if private investors and companies have confidence in the authorities behind it.
It's right to start the debate: Now that economic power is diffused, why should one country's currency be at the centre of global trade? But the G20's leaders should approach these subjects with humility, recognizing they haven't yet earned the right to be taken seriously. Before getting carried away with reworking the international monetary system, the G20 should first make good on its original pledge - to stabilize the global economy. That means following through on the pledge made in Seoul in November to create guidelines for when a member country's economic policies risk throwing the global economy off track. Then, show the G20 is capable of exerting enough pressure to force that country to change its policies.
"We know what needs to be done," said Mr. Adams, who is now a managing director at the Lindsey Group, a consultancy based in Fairfax, Va. "None of this is novel. It's all in the G20 communiqués. We just need to do it."