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The seventh G20 summit opened at Los Cabos in Mexico on Monday. The importance of the G20 is evident from the fact that the members of the group account for more than 80 percent of the world's output and trade, and more than 60 percent of the global population.
The composition of the G20 is unique: economies with high per capita incomes and high levels of social development co-existing with the fastest-growing economies that are still developing. The economies referred to as the developed "North" include the G8 group - the United States, the United Kingdom, Canada, Italy, Germany, Japan, France and Russia - and Australia. The countries representing the high-growth developing countries of the "South" include China, India, Brazil, South Africa, South Korea, Indonesia, Mexico, Argentina, Saudi Arabia and Turkey. During the last decade there has been a gradual change within the G20 in the balance of economic power between the developed "North" and the developing "South".
The financial crisis of 2008 and the debt crisis in Europe have resulted in major problems for several G8 countries. Most of the emerging market economies have been able to maintain a steady rate of economic growth. Led by China, the other economies from this group that are performing well are India, Brazil, Argentina, Indonesia and Mexico. As a result of their better economic performances, the ability of the emerging market and developing economy members of the G20 to influence the group's decisions has increased.
The Mexico summit of the G20 are dominated by discussions on Europe and the prospects of the world economy. It is not clear whether financially affected European economies such as Greece, Spain, Portugal and Italy will be able to implement the austerity measures that Germany wants them to. It is disturbing that the political sentiments in Europe are increasingly moving against tough economic measures. The recent election results in France and Greece show that common people are favoring political parties and leaders who are suggesting populist economic steps rather than tough measures. If these trends continue then it will be difficult for Europe to recover financially. The G20 is expected to take careful note of these developments.
The crisis in Europe has not only affected the G8 but emerging market economies and developing countries also. For all these countries, Europe's financial difficulties have meant lower demand for exports and less foreign exchange earnings. The crisis in Europe has also affected the stock markets of emerging market economies and capital inflows into these economies.
Regarding Europe's long-term economic recovery, the G20 might discuss the possibility of emerging market economies and developing countries buying European bonds. These bonds will help the European banks and financial institutions to get much-needed cash. Several emerging market economies have the financial strength to buy these bonds. But they are likely to do so only if they get the sense that European economies are serious about taking the hard measures necessary to tackle their problems.
It will be interesting to follow the views of the BRICS countries, Brazil, Russia, India, China and South Africa on the economic discussions at the summit. The last BRICS summit took place a couple of months ago in India. BRICS is gradually becoming an important economic group and its members have several common interests. These include sustainable development, climate change, international trade and infrastructure. On some of these issues, the views of the BRICS countries are different from those of the G8 countries. So if the G20 discusses subjects like international trade, particularly the resumption of the Doha Development Agenda of the WTO, there are likely to be major differences of opinion within the G20.
As mentioned earlier, the economic balance of power within the G20 has begun changing and the emergence of BRICS has accelerated this change. The BRICS countries and the other emerging market economies are now in a position to have a decisive say on world economic matters discussed at the G20. But they must use this new position of power carefully in order to maximize their long-term economic interests.
At the moment, a quick recovery in Europe is in the interest of the BRICS countries and the "South". They should accordingly work together in the G20. If necessary, they could play a more direct role in Europe's recovery. Such a role, like buying large quantities of European bonds, would increase the long-term influence of emerging market economies on the European economy. That would also increase their clout in the world economy while helping Europe to recover.
The author is head of Partnership & Programme and visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore.
(China Daily 06/19/2012 page9)