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G20 prioritised over G8: any change for Europe, developing countries?

29 September 2009

Leaders meeting in Pittsburgh agreed that the G-20 should be “the premier forum for our international economic cooperation". They demoted the G8 to cover only security and foreign policy issues. Many civil society groups are glad that the anachronistic G8 has lost its original mandate. But will developing country citizens gain from the new arrangements? And what of Europe, which appears to have lost power and visibility?

There have been some extravagant claims about the G20 announcements. They include Hamish McRae in The Independent who wrote “if you wanted to pick a day when the developed world accepted that economic power was shifting to the emerging nations, last Friday is as good as any”. Mitch Potter in the Toronto Star hypothesised that “G20 leaders took a dramatic leap toward a new world order”. 

Several politicians and commentators (including Eurodad in our pre-G20 analysis) had urged European Union governments to step aside to make way for developing country ones. See for example in this BBC video interview with Brazilian finance minister Guido Mantega. Jacques Attali, former president of the European Bank for Reconstruction and Development writes in Slate (France) that Europe is very much weakened by the new arrangements. The maths are clear: in the G8 the European Union had half the members; now (even with special guests like Spain and Netherlands they make up a quarter. Attali says that the EU must offer China an informal pre-meeting before the next G20, to ensure that it remains visible. 

However Paola Subachi at the Chatham House think tank in London writes in E!Sharp that President Obama "has put the ball in Europe’s court. It is now up to Europe to decide how to play". She warns, as Eurodad and many of our members have done in previous reports, that "there is no easy way out: the larger European countries will eventually have to accept a rebalancing of power towards the developing world. But this could also be an opportunity for them to act together and to focus on Europe’s external representation". Chatham House produced a report on the issue (PDF) earlier this year.

The United Nations and IMF chiefs were united in their views that the changes are also a defeat for the developing world. Ban Ki-Moon, UN secretary-general, told the Financial Times he was in Pittsburgh to remind G20 leaders that 85 per cent of the world's countries were not represented at the meeting. "There is still only one universal body for intergovernmental co-operation and that is the UN General Assembly," he said. "I have urged leaders at the G20 to see the UN as its vital partner at all levels." Dominique Strauss-Kahn, head of the International Monetary Fund, feared that African nations in particular would inevitably feel excluded by the G20. He commented: "when you have 25 or 26 countries in a room, you have another 160 that are outside the room".

Martin Khor, director of the South Centre, writing in The Star (Malaysia) comments that “most developing countries are not in the G20 and they have not accepted the G20 as the “premier” body that will decide on global economic issues in their absence”. He continues that a Latin American minister told him that “even if a few countries in his region are in the G20, this does not mean that his country or region is represented, as he was not consulted nor did he agree that those countries would represent his country”.

Mark Weisbrot, in the Guardian urged against believing all you read on the power of the G20. He said the real action remains with “the institutions that have economic enforcement capability” – our old friends the International Monetary Fund (IMF), the World Bank, and World Trade Organization (WTO)”. He points out that the “first two are directly controlled by the rich countries, mostly by the US Treasury”. Eurodad and many members and allies are taking this seriously, with a series of meetings and advocacy opportunities lined up for the Istanbul Bank/Fund meetings in a few days time.  

Similar governance dynamics are at play in the IMF board. The G20 recorded that "we are committed to a shift in International Monetary Fund (IMF) quota share to dynamic emerging markets and developing countries of at least 5% from over-represented countries to under-represented countries". At the Bank, too they committed to "an increase of at least 3% of voting power for developing and transition countries, to the benefit of under-represented countries". Most of the reduction will have to come from Europeans, also if the number of board seats is reduced from 24 to 20.  

There are still major questions on how the new G20 will all work. Edward Luce in the FT continued: “the fact that the new body includes members as diverse as Argentina, Turkey and the presidency of the EU - in addition to the observer status for Spain and the Netherlands, the United Nations and so on - suggests its real work will be done by smaller sub-committees. In a world of proliferating G-groups, the one to watch is that nicknamed ‘G2’ between the US and China. Many in Pittsburgh have remarked upon the size and sophistication of China's delegation compared to any other participant barring the US”. Leaders recognised that their officials must bring them proposals on new G20 processes. They are supposed to be delivered when in June next year at the next G20 leaders meeting, in some format that will involve parallel G8/G20 processes. There will then be another G20 meeting later in 2010 in South Korea.

It is far too early to declare the birth of a new world order, but a step towards rebalancing global economic governance has been taken. And Europeans have the most work to do to reorganise ourselves accordingly. In both the G20 and IMF processes Eurodad will be pressing for streamlined European representation with clear checks and balances so that civil society groups and parliamentarians can hold decision-makers accountable.