G20 London 2009


G20 Gets a Big Obama Bounce

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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.

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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.



From G20 to G2?
April 2, 2009, 7:36 am
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Hu-Obama

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: All Systems Go
April 2, 2009, 3:17 am
Filed under: Analysis | Tags: , , , , , ,

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Andrew Schrumm  CIGI Research Officer
From the London Summit Media Centre

It’s early morning here in London, and the G20 meetings have just begun. UK Prime Minister Gordon Brown, the eager summit host, is welcoming all the leaders now, in advance of the traditional “family photo”and their working sessions. While the G20 is a fairly new leaders’ grouping, the familiar G8-style of informal interactions (working meals and press briefings) has found its way into the process.

Most significant so far has been the series of bilateral meetings, particularly by US President Barack Obama. As his first major overseas trip, a priviledged few national leaders have had the opportunity to sit down with the president one-on-one. Yesterday, his meetings with both Russian President Dimitri Medvedev and Chinese Presiden Hu Jintao made international headlines – while mainly congenial and a demonstration of good will, these meetings surprisingly engaged in substantive dialogue. With Russia, the US will begin a new conversation on global nuclear disarmament and a broader security agenda. With China, the US is anticipated to launch a renewed dialogue, leading into an official state visit by President Obama to China in late-2009.

Today, we are anticipating the final language on the summit declaration which will outline the G20’s major initiatives to correct the world economy and establish an international financial regulatory framework to avoid future crises. The exact language here must be both cautious and aggressive at the same time; cautious in that leaders will be held to account on their agreements by national groups and international civil society; and agressive in that strong corrective measures are needed to stimulate national economies and bolster international financial institutions.

As posted yesterday, Lord Mark Malloch-Brown (UK’s G20 special envoy) set some clear expectations for the summit declaration, noting that it will avoid setting strict standards on national stimulus programs and will leave climate negotiations to the UNFCCC.  Clearly the G20 won’t be able to accomplish everything in one day – as things continue, CIGI and Chatham House will continue to provide commentary and analysis on develops here 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.



Setting Expectations for the G20 Summit
April 1, 2009, 11:36 am
Filed under: Analysis | Tags: , , , , ,

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Andrew Schrumm  CIGI Research Officer
From the London Summit Media Centre

This morning, Chatham House hosted a high-level panel on the G20 London Summit. As both a launch of its new report, New Ideas for the London Summit: Recommendations to the G20 Leaders, and as a public forum on the eve of the major international meeting. Chaired by Chatham House Director Dr. Robin Niblett, the panel included Lord Mark Malloch-Brown, UK prime minister’s G20 special envoy; Dr. Youssef Boutros-Ghali, Egypt’s minister of finance and chairman of the International Monetary and Financial Committee (IMFC); Stephen Roach, Morgan Stanley Asia Director; Dan Price, Sidley Austin Senior Partner for Global Issues; and Dr. Paola Subacchi, Chatham House Research Director of International Economics.

The panel rasied a number of critical questions on the state of the global economy, the nature of the response, and the style of crisis management through the G20 process. The full-length audio of the event is available online at: http://www.chathamhouse.org.uk/events/view/-/id/1105/

Amid high expectations for the G20, the panel acknowledged that there will need to be compromises in both substantive areas and in the process. In his remarks, Lord Malloch-Brown attempted to set expectations for tomorrow’s meetings, by giving insight on the declaration. He noted that there will not be specific agreement on two major items – climate change and a global stimulus benchmark. First, as many participating countries urged that the climate change process continue through the UNFCCC, the G20 should not disrupt the discussions leading in to the major meeting in December at Copenhagen. Second, as many nations are in mid-course of stimulus infusion, a technical judgement was made that the G20 should not promote a standard stimulus rate at a time when most are sorting out the true demands of their domestic economies. Lord Malloch-Brown emphasized, however, that as a peer group the G20 will continue active monitoring and coordination of national economic stimuli, observing and advising one-another on adequate measures to avoid inflation.

These two hesitations emphasize the limitations of the G20, primarily that it is not a legislative body. Any summit declarations must seek compliance first at the national-level after the leaders return home, and second on the international regulatory institutions to employ the G20’s prescriptive measures. With this in mind, Lord Malloch-Brown suggested that the summit declaration will include commitments in a number of areas. First, a strong package on regulation, with broad agreement on enhancement of the Financial Stability Forum (FSF), Basel discussions, and IMF functions. Second, an international emphasis on trade promotion and reduction of protectionist measures. Third, a recognition of stability in poor economies will rely on continued /increased development assistance by industrialized countries to the global South. And forth, a strengthening of the international financial institutions – particularly IMF and World Bank – but with economic support must come reform.

These insights, from a key insider of the G20 process, are telling. Lord Malloch-Brown modestly acknowledged that the world’s economic problems will not be solved in a few hours of meetings, and that progress will have to come over a long period of time. However, he remains optimistic that this phase of international economic diplomacy will mark the ‘beginning of the end’ to the global crisis.



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.



Challenges Ahead for London Summit
March 31, 2009, 7:41 pm
Filed under: Comment | Tags: , , , , ,

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

What will the G20 London Summit be remembered for? Some observers have argued that it will mark a major turning point in global politics and international governance. Yet, so far it has raised more questions than answers, as energies for a new economic consensus appear drained by old divergences. Will the established G7 be able to rally around the Obama-Brown partnership, and reassert its leadership? Will we see the solidification of a more assertive G5 of emerging economies? Will some countries be able to straddle such a divide if it emerges? Are we seeing a new “coming together” of North and South, or will frustrations from London give rise to a new global South?

Notwithstanding the yeoman work put in by the officials from the G20 in the lead up to the London Summit, there is bound to be fallout if the G8 and the emerging powers cannot reach consensus on a sufficient number of the major issues at the London Summit. The handlers will make sure that some successes are recorded, and a coherent communiqué issued.

Certainly, there will be some recognizable agreements on a host of technical issues, ranging from stronger domestic banking regulations to surveillance of cross-border transactions to increased resources for the International Monetary Fund (IMF) and the Financial Stability Forum (FSF). While, in declaratory terms, there will be strong commitments made against protectionism and an escalation of initiatives on tax havens. There will also be an announcement of some new pool of money for least developed countries to weather the current economic storm.

What is unclear is whether the policy package coming from London will be enough to claim longer-term success, on a couple of criteria. First, as a global economic crisis committee, is to effectively dig the G20 out of global recession and to prevent others such crises. And second – and this is often lost amidst to technicalities – is to make the G20 the ‘summit of summits’, a new concert in which there is greater equality between the quadrants of the globe.

However, if the deeds do not match the words, and things get worse on the ground in the ‘real’ economy, the G20 could be seen as perpetuating the dire economic situation. Certainly, the honeymoon for Barack Obama would be short-lived, similarly Gordon Brown’s political resurrection. The G20 must strive to find a balance between collectively hammering out sweeping and immediate financial regulations and laying the foundation of a global forum more representative of the economic order of tomorrow.

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.