G20 London 2009

G20 Gets a Big Obama Bounce

Andrew F. Cooper
  CIGI Associate Director and Distinguished Fellow

On the eve of the G20 it looked as though the summit would be a marked failure. As with the first meeting in Washington DC meeting back in November the public optics were all about the clash of civilizations between the market oriented countries led by the US and the UK and the regulatory oriented countries led by France and Germany. The former pushed for a collective stimulus or ‘rescue’ package. The latter wanted to focus on putting into place constraints on the excesses of the so-called ‘Anglo-Saxon’ business model. In an unconventional move the German chancellor and the French president upped the ante via a joint appearance amidst speculation of red lines and even a De Gaulle-like empty chair.

A big crisis however did concentrate the mind of the leaders about the implications of a non result from the major economies. Cutting through the temptations to simply reinforce what President Obama called at his press conference national ‘quirks’ compromises were made to give the G20 the big result it needed to be a confidence booster.

Obama did not get national set of stimulus packages he originally wanted. But this omission was overshadowed by the announcement of the one trillion dollar initiative for the International Monetary Fund. Angela Merkel and Nicolas Sarkozy did not get a grand new architecture of regulation but they got important bits and pieces of regulation directed at hedge funds and bankers’ pay, a revamped Financial Stability Board, and an upgraded drive against tax havens.

In cliched terms this was a win-win situation as leaders on both sides of the Atlantic could claim victory. Yet it must be allowed that the scope of these wins was highly differentiated. Although Gordon Brown did a first class job as host his government is fading into certain defeat at the next election with the idea of him extracting some further personal bounce through the G20 highly unlikely. Angela Merkel acted as a solid national leader but without any image of an international statesperson. Nicolas Sarkosy blends energy and shallowness as his stylistically impressive calls for action lack substantive follow up.

President Barack Obama enhanced his reputation in an unanticipated manner. Fighting a cold at his press conference his pronouncements of the G20 achievements were fairly perfunctory. And although he flashed some of his vast store of charm he also bobbed and weaved around some tough questioning. From the US press corps the focus was exclusively instrumentally. What did the G20 result mean for main-street USA? From the international journalists in attendance the focus was on the sense of American decline.

Although deft in these handlings of these questions (see my video blog for CBC as a G20 ‘insider’), it was his operative diplomacy not just his communication skills that deserves kudos. Behind the scenes he crafted a compromise between France and China on tax havens. He gave ground on issues without doing anything that was offside with his domestic initiatives. He gave the impression that a new type of assertive US leadership was on tap without being ‘soft’ in acknowledging that the US was the exclusively to blame for the crisis. While speaking about the flaws of Wall Street he also pointed to mistakes in the European and Asian banking sectors.

If Obama was the big winner he was not the only one. As other blogs have commented China made a mark to the extent where observers are talking about an informal G2 inside the G20. Institutionalism is back in whether in the case of the formerly obscure (the Financial Stability Forum, now Board) or the controversial (the IMF). The biggest winner of all – along with Obama – though may well be the G20. Here the parallelism about the positional ascendancy of the new US president and the new forum is striking. For if reports are right about the third G20 being in New York in September, it will be Obama who chairs the next stage of this dynamic process.

Disclaimer: This blog is solely intended to spur discussion, while the opinions expressed are those of the author(s) and do not necessarily reflect the views of CIGI, Chatham House or their respective Boards of Directors.


G20 and Tax Havens: Efficiency, Yes; Legitimacy, Maybe…

Andrew F. Cooper  CIGI Associate Director and Distinguished Fellow
From the London Summit Media Centre

Offshore financial centres (or tax havens) did not cause the financial crisis. But tax havens have become one of the prime targets of the G20 in its efforts to deal with the global economic meltdown. Although there are some differences in the means to do so, the accelerating offensive against tax havens has bridged the trans-Atlantic divide that has defined the London Summit on so many other issues.

The US has become far less tolerant of tax havens in the wake of the UBS scandal, in which Swiss banking officials stand accused of facilitating tax evasion by US citizens. During the presidential campaign, Mr. Obama often cited frustration on tax havens, often referring to a single office building in the Cayman Islands that houses 12,000 US-based corporations. The UK – facing a marked decline in the role of London as a financial hub – is trying to repatriate some of the big pools of money not only from tax evaders but tax avoiders (with Labour Prime Minister Gordon Brown pledging to have Briton’s pay the ‘right amount of tax’). Germany has mounted a concerted drive against the culture of secrecy found in Liechtenstein, especially when so many rich Germans have taken advantage of that secrecy. And French President Nicolas Sarkozy has stated a successful outcome relating to the regulation of tax havens one of his ‘red line’ in which the G20 summit must deliver results.

The issue of tax havens as viewed through the lens of efficiency has become one of the unanticipated markers of the success of the G20. At the first Washington DC summit in November 2008, Sarkozy lamented the lack of success in this agenda area. Yet, as pushed by the Paris-based OECD, the G20 has moved to send a strong signal to those tax havens which have refused to sign tax information exchange deals. It appears as though a ‘naming and shaming’ approach will lead to eventual sanctions on states that don’t enter into tax sharing agreements.

If a sign of efficient action, however, the issue of tax havens raises the question of legitimacy. Can the G20 not only speak for the rest of the world but impose its will on countries that do not belong to the group. The G20 is arguably over-represented by European countries – to the point where the Czech Republic and Spain have hung on their spots from the Washington DC meeting. But it is quite striking that the countries targeted as tax havens in Europe (not just the small principalities such as Liechtenstein, Luxembourg) and Monaco but middle sized countries including Austria, Belgium and Switzerland are not included.

The question of legitimacy is even more pronounced in the case of the Caribbean, where many of the best known tax havens are located. As noted this type of niche highlights some of the defects associated of the shadow economy. The Cayman Island’s for example have more registered businesses than citizens. Yet, targeting developing countries contributes to other anomalies. While the offshore has been targeted their onshore competitors (most notably, the US state of Delaware) has been left alone. Nor has there been any move to have Caribbean regional representation akin to ASEAN or the African Union.

The site for individual or collective voice on this issue, therefore, turns away from the G20 to another forum – the Summit of the Americas, to be held in Trinidad and Tobago in two weeks time.

Disclaimer: This blog is solely intended to spur discussion, while the opinions expressed are those of the author(s) and do not necessarily reflect the views of CIGI, Chatham House or their respective Boards of Directors.

Global Imbalances have Consequences
April 2, 2009, 9:33 am
Filed under: Analysis | Tags: , , , , , ,

Ruth Davis  Junior Research Fellow, International Economics, Chatham House

boutros-ghaliThe Chatham House panel discussion held on the eve of the London Summit promised “Multiple Perspectives on the G20” and it delivered just that. This event marked the launch of the Chatham House-Atlantic Council report “New Ideas for the London Summit”; there is broad support for this summit and a will for the G20 to succeed in delivering the “ambitious, but manageable and focused agenda” which the report deems necessary.

However, there are dissenting voices or at least notes of caution too – quite apart from the much publicised intransigence shown by certain EU leaders. Dr Boutros-Ghali, the Egyptian finance minister and Chair of the IMFC, will be attending the summit although Egypt is not in the G20. He reminded the audience that these “twenty countries represent themselves. They don’t represent the rest of the world even if they work for it.” Though he acknowledged it was a strong word, he noted that the G20 is technically “illegitimate” as it is not part of an international treaty backed system. Acting as a conduit for the voices of the 172 countries not in the G20, he spoke of the crowding out taking place in the world debt market, which means that US and EU borrowing requirements are pushing out countries like Indonesia and Mexico where the human consequences of financing shortfalls will inevitably be more grave than in developed countries with established welfare systems.

Dr Boutros-Ghali also talked about the IMF: the adult meant to be supervising the global economy but who was “out of the room” when the crisis happened. He noted the problems surrounding the provision of extra funds for the IMF; although this new money is necessary to prevent the collapse of vulnerable emerging economies, refinancing by means of bilateral borrowing rather than by expanding IMF aggregate quotas negates the need for immediate governance reform and a rebalancing of country representation within the organisation.

Stephen Roach, Chairman of Morgan Stanley Asia, also drew out what he saw as contradictions in the G20’s approach to crisis resolution and sequencing of policy actions. While Lord Malloch-Brown and others feel that the global fiscal stimulus measures are a necessary and imperative short term response to substitute for the collapse in global demand, Roach challenged this view and asserted that policymakers are misreading Keynes. For Roach, “this is our time to deal with the heavy lifting” and “shame on us if we fail to do it at this summit.” This means tackling the global imbalances head on (essentially, raising consumption in the Chinese domestic economy and encouraging saving in the US) and addressing the interplay between asset bubbles and global imbalances – a complicated task that he is not convinced politicians are up to. For the sake of countries both inside and out of the G20, let’s hope he is wrong.

Disclaimer: This blog is solely intended to spur discussion, while the opinions expressed are those of the author(s) and do not necessarily reflect the views of CIGI, Chatham House or their respective Boards of Directors.

From G20 to G2?
April 2, 2009, 7:36 am
Filed under: Comment | Tags: , , , , , ,


Gregory Chin  CIGI Senior Fellow
From the London Summit Media Centre

As the global financial crisis has grown into an economic crisis, there is a sense that this time in London, there is more at stake than diplomatic poker. At one level, people are tried of summits. Yet at another, people get it that leaders need to go solve the brewing crisis at the global level.

The financial crisis has turned into one of confidence, beyond financial markets. Commodity prices have fallen. It is affecting peoples’ jobs and livelihood, spreading across the globe. In Africa, fragile states that have depended on exports in niche sectors have seen their trade dry-up. It has become a crisis of real life, fuelling insecurity and uncertainty for households. This explains the surge in expectations for the G20 London. This is one of the differences between the G20 Washington last November and London this time.

In the lead up to London, the leaders themselves seem more engaged – more personally involved. World leaders have become their own sherpas, driving the agenda for the meetings. The host, UK Prime Minister Gordon Brown, has expended tremendous personal energy and political capital to set the tone and provide leadership for this summit. There is recognition among world leaders that they need to restore confidence and demonstrate there is “someone in charge out there”. The top advisors to the host have called for concrete and realistic goals; a focus on first priorities; and objectives that give a sense of “the beginning of the end” of the global crisis. This has required fighting off the temptation to expand the agenda to include, for example, climate change. The focus has been on economic problem solving. In this regard, G20 London is turning out to be different from recent G8 Summits.

At the same time, the host government has encouraged broader participation at this summit beyond the G20, based on the reasoning that the world is facing truly global problems, and that fixing the global system will require a broader international effort than “the 20”. While such an approach offers legitimacy gains, it also accentuates existing collective action challenges.

The G20 London Summit is expected to bring stronger domestic pledges on ODA commitments to developing countries, as well as increased commitments to the international financial institutions. London is expected to result in a stronger package of regulations, including principles for strengthening national banking and financial regulations, and more robust peer pressure mechanisms via the Financial Stability Forum, Basel, and the International Monetary Fund. However, the word is that there will not be a new global stimulus package. Instead there will be a commitment to monitor closely, and add at the later date if more is needed, or step on the brake to prevent inflation. While the above would represent an advance on the Washington Summit last November, it will likely not be enough.

Here we should note that we are seeing the rise of a new informal “G2” – between the United States and China. And this is the crux of the challenge for the G20. If an “expanded G20” cannot deliver, it will feed Great Power withdrawal into the bilateral track to deal with matters of highest strategic importance. This could mean confining the multilateral track to implementing the decisions made by the Big 2. The result would be a more varied architecture, which in itself, is not a negative outcome. But the reality of an informal G2 should serve as a warning to those who are playing a soft power hand. That expanding the G20 could impair the role of “the 20” in setting the agenda – not to mention its effectiveness.

Disclaimer: This blog is solely intended to spur discussion, while the opinions expressed are those of the author(s) and do not necessarily reflect the views of CIGI, Chatham House or their respective Boards of Directors.

G20 Must Escape G7-itis
March 31, 2009, 8:01 pm
Filed under: Comment | Tags: , , , , ,

Andrew F. Cooper  CIGI Associate Director and Distinguished Fellow
Gregory Chin  CIGI Senior Fellow

As the first hosts of the G20 leaders’ meetings, the US and the UK have coordinated the summit agenda, and set a tone for the meetings. The leadership from Prime Minister Gordon Brown and President Barack Obama has, in some ways, yeilded positive results. However, it has arguably come at the expense of a genuine recognition that the world has significantly changed and that the Atlantic condominium is no longer enough, even to set the base for the broader discussions.

A narrow focus on disagreements in response measures to the fast evolving global economic crisis between the Anglo countries and the Continental countries distracts from the critical task of building the new and broader international consensus that is needed at this time for collective crisis management measures and collective stimulus package to emerge from London. Continued overemphasis of trans-Atlantic views and contestation is crowding out ideas and proposals from key emerging actors in the global system.

The take-away message is that the success or failure of the G20 will be determined not just by the details of new re-regulation and stimuli packages. Outstanding issues of institutional architectural reform that allow for effective and legitimate global macro-coordination are also crucial for building the new international governance consensus that is needed for the future. There is much to the done in rebuilding the institutional framework of global governance. The G20 can be an important start for this process. But the very notion of a G20 means that the world is no longer that of 1945 or 1975 – when a narrow band of countries could produce the ideas and architecture that mattered.

The world in 2009 is dramatically different. The traditional powers can no longer dictate to the supplicants. At the same time, the exact ordering in the new international hierarchy is not clear cut, Some countries in the G20 have been included not because of their contribution potential to the system but because of their potential to impair or destabilize the system (think Argentina and Turkey). Even as we have gotten used to talking about a G20 or G8+5, we are seeing signs of the coming of age of a new G5 of emerging powers, not to mention a new G2 of the United States and China.

The G20 London Summit will be remembered for its delivery of results (or lacktherof) and moblization of participating countries, despite their diversity. As the leaders begin to converge in London, this blog intends to trace what is happening inside and around the G20, and the broader context of issues and contestation shaping the core discussions.

Tomorrow we will detail the key challenges that the G20 London Summit faces in terms of brokering new international political consensus, including what we are hearing on the ground in London.


Disclaimer: This blog is solely intended to spur discussion, while the opinions expressed are those of the author(s) and do not necessarily reflect the views of CIGI, Chatham House or their respective Boards of Directors.

Experts Comment on G20
March 28, 2009, 6:10 pm
Filed under: Admin | Tags: , , ,

Under the auspices of its Breaking Global Deadlocks project, CIGI co-organized a workshop with the Brookings Institution (USA) and the Centre for Global Studies (Canada) on 9 February 2009 entitled, International Financial Governance: Toward the London G20 Summit.

Convened to allow for consultations among G20 experts with the U.K. officials organizing the London Summit 2009. With opening remarks by Prime Minister Gordon Brown, discussions were of the highest level. What proceeded was a frank and open discussion on the role of the G20 as a global economic crisis committee

While the event conducted under the Chatham House Rule of non-attribution, Brookings prepared an event summary that provides a snapshot of the major points of discussion. Additionally, the UK Foreign Office recorded a number of video commentaries for the London Summit website, including two senior CIGI researchers:

Colin Bradford, CIGI Senior Fellow and Brookings Senior Fellow

Gordon Smith, CIGI Board of Governors Member and CFGS Director

Disclaimer: This blog is solely intended to spur discussion, while the opinions expressed are those of the author(s) and do not necessarily reflect the views of CIGI, Chatham House or their respective Boards of Directors.