Some positive talking points ahead of the G20 Summit in Hamburg

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Glass of water
Indicators are looking better

Two weeks out from the Hamburg Summit, there are plenty of warning signs that this may be the most challenging G20 meeting since G20 leaders first met in Washington in 2008. Then, the global economy stood on the precipice of a dramatic collapse. Staring down the barrel of a long and protracted global economic recession on an unprecedented scale, G20 leaders opted for cooperation via a massive collective global economic stimulus program.

 

While that collective stimulus was possibly cut short too soon, it most probably managed to save us from an even worse scenario than the one we are still fighting our way out of. Despite the fragility and frustratingly slow nature of the post-crisis recovery, global economic indicators are, at least for the most part, looking better than they have for several years. Yet just when the omens seem to be indicating a change for the better is underway, the old (near)consensus among G20 leaders that cooperation was the first best option for kickstarting global-growth seems to be at risk of evaporating.

However, amid the gathering doom and gloom, some of which was covered in this blog last week, there are a few points of light in the G20 agenda that should not be forgotten. Moreover, there is even real-world evidence that G20-backed initiatives have put (some of) us on a better path than where we were before. So, for anyone looking for reasons to believe that the G20 still has something to offer for human civilization, here’s a few things to keep in mind over the next few weeks:

A large European bank just collapsed and there was no contagion or domino effect

When looking at the contemporary G20 agenda, and the variety of issues that have been taken on by the German G20 presidency in 2017, it is easy to forget that the reason the G20 leaders process came into being back in 2008 was largely due to the failures of bank regulators. When Lehman Brothers filed for bankruptcy in the US in 2008, banks across the world, and their regulators, had to scramble to find out how exposed they were not only to Lehman Brothers, but also the kinds of toxic financial instruments that were at the heart of the 2008 recession. As banks across the world realised the perilous state of their balance sheets, governments were called upon worldwide to at least guarantee the deposits of bank customers, or, in many cases, to directly nationalise banks to avert a total economic meltdown. When G20 leaders met in Washington, and at subsequent G20 summits, they signed off on a program of financial regulatory reform to try and prevent such a scenario from happening again.

The recent collapse of Banco Popular in Spain (the official unofficial G20 member) is a testament to the reforms that have been enacted since 2008. That the bank collapsed at all is an indication that the regulatory system in EU and Spain is not perfect, however, once regulators realised the fifth largest financial institution in the country was unable to survive on its own, they enacted recently established procedures and were able to wind the bank up in under 24 hours.

It is true that the circumstances of the resolution of Banco Popular were somewhat fortuitous, with its new owner, Banco Santander, having already been considering buying out the troubled institution for the previous two months, such that it was familiar with Popular’s financial situation and was able to conduct due diligence on the emergency sale (it bought Popular for the princely sum of 1 euro). However, compared to seven years ago, when the Spanish government was forced to apply for an emergency loan package of €100 billion from the Eurozone in order to rescue its ailing banking sector, this new bank rescue is commendable in that it cost the Spanish taxpayers precisely zero euros.

The rescue is also notable for the use of the ‘bail-in’ mechanism, recently established by the EU’s Single Supervisory mechanism. Bond-holders in Banco Popular have had their investments converted into shares (which are now more or less worthless), thereby reducing the debts of the bank such that a buyout became much more feasible. This concept filtered down to the EU financial regulators via the Financial Stability Board, the steering committee of global financial regulation that was established by the G20 in 2008. Indeed, finding ways to calmly wind-down financial institutions is in many ways one of the first priorities the G20 leaders ever set themselves. Of course, success has many parents, and failure is an orphan, but in this case, the G20 can take a certain degree of credit in having driven forward the kinds of rules that mean Spain is not currently in the middle of a systemic banking collapse.

A healthy G20 in Hamburg?

This has been covered in a previous T20 blog, however it is highly likely that Angela Merkel and a handful of other G20 leaders (at least) will deliver some major commitments on global health governance at the Hamburg Summit. The Chancellor has made her interest in strengthening the global health emergency framework very public, such that it seems probable there will be an announcement of some sort around pandemics and the financing of initiatives like the World Bank’s pandemic emergency financing facility. The idea of health as a ‘global governance’ priority tends to be sidelined when compared to matters such as security or finance, however Hamburg could mark a shift in this tendency.

Climate Change will be discussed and there will be a positive statement by some G20 members

At the recent G7 Taormina summit, participants signed off on something highly unusual for a ‘G’ meeting – a statement that not all members endorsed. As a forum that traditionally requires  consensus, the Taormina communique pointedly noted that the US was unable to agree to a consensus, while the other six G7 members reaffirmed “their strong commitment to swiftly implement the Paris Agreement”. It would be surprising to see this same language repeated at Hamburg, although it cannot be ruled out. What is perhaps more likely, is either a separate statement will be released by at least Germany (and the EU) and China, and possibly Canada, in advance of the summit, or the G20 members except for the US will issue a document with a similar intent to the sentence above from Taormina. In short – the Paris agreement is not a dead duck, and the Hamburg Summit will likely confirm that it is still very much in play for the majority of G20 members.

“We all know what to do, we just don’t know how to get re-elected after we’ve done it”

The above quote, by Jean-Claude Juncker, President of the European Commission, gets to the heart of the real challenge that stands in the way of the G20 doing anything useful in 2017. The G20 is premised on the idea that individual leaders are capable of initiating change, because of their unique political remit. Alternatively, there are those who counter that in the long run, individuals are mostly insignificant players floating on large political tides, economic pressures, and other macro-forces, which are beyond their control. Juncker’s tongue in cheek comment hints at a deference to the latter idea, but also acknowledges that leaders sometimes shy away from the big but ultimately necessary challenges for fear of political damage.

At the Hamburg Leaders’ Summit, there will be several individuals in the room who will be determined to come away with a ‘big win’ for their home audience. Donald Trump is one of them, but so too are Emmanual Macron and Angela Merkel, with the German Chancellor facing an election shortly after the summit. The incentive for Merkel and her government to fight for every last possible ‘achievable’ in Hamburg is therefore large, insofar as a strong showing on the world stage will bolster the chances of her and her party’s re-election to government and thereby serve as a nice counterpoint to Juncker’s scepticism. Conveniently then, just when the G20 desperately needs an incentivized and personally involved leader at the helm to pull off the kind of positive outcomes listed above – in Hamburg it might have one.

Image: Hugh Jorgensen

Hugh Jorgensen works as a Policy Advisor in International Relations, G20 / T20

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