The consequences of the Canadian double summits for the global economy
Early this summer, the world leaders gathered again at the G8 and G20 Summits in their collective search for more effective solutions to the crisis-borne problems facing their national and global economies and also to try to reach some universal agreements on the new rules of conduct for players on the global financial markets. The first to meet was the G8 leaders, who gathered on June 25-26 in the Canadian city of Huntsville in the Ontario Province, and thereafter joined the rest of the other top global leaders on June 26-27 for the G20 Summit in Toronto to deliberate on the ways and mechanisms for regulating the global financial markets, the key issue on the latter’s agenda. According to press reports, the expenditures, carrying a price of tag of about $1bln, spent on holding the first-of-its-kind double summits turned out to be the most expensive in the entire history of conducting such summits.
Interestingly, exactly 20 years ago, and precisely, on June 19-21, 1988, the 14th summit of what was then known as the ‘Group of Seven’ (G7) was also held in Canada. Back then, two main factors defined the atmosphere of that summit. The first was the end of the political career of U.S. President Ronald Reagan, who was at summit for the last time in his capacity as the head of the White House, the office, which he has held for the eight previous years. It was mostly his activities that resulted in the eventual collapse of the entire socialist bloc and the consequential tectonic shifts in the global political system and order. The second key factor was the fact that the 1988 summit coincided with the economic revival of the G7 countries from the global financial meltdown caused by the ‘Black Monday’ on the U.S. stocks market on Oct. 19, 1987.
However, unlike the 1988 summit, the general atmosphere that surrounded the events that took place at the June 2010 summit in Canada was much less optimistic. For one, the time for holding the summit was characterized by uncertainty; and besides, the fact that both summits were held almost simultaneously meant that the most industrialized countries were not yet ready to fully entrust the task of finding the urgently needed solutions to world current affairs, notably the issue of effective global management of international finances, to the G20.
Indeed, the intriguing context of the summits had manifested itself several weeks before the meetings even kicked off in Canada. For instance, on the eve of the summits, the influential Bilderberg Club held its traditional meeting, this time in Sitges, a resort city in Spain. According to the sources closed to the club, between 80 and 130 persons attended the event, about one third of whom were, as usual, influential politicians from across the globe, while the rest represented ‘who is who’ in industry, finance and sciences. The keynote speaker was Jose Rodriguez Sapatero, the Spanish prime minister. The first conclusion drawn by the observers’ of the Club deliberations was that Spain was most probably expected to be the next in line to face crisis-related problems in the euro zone, while the Spanish-speaking countries, notably in South and Latin America, will be more severely hurt on the global arena.
G8 member countries: Great Britain, Germany, Italy, Canada, Russia, US, France and Japan.
In Europe, the key focus now is on Germany. The tough position of the German leadership aimed at the speedy implementation of an austerity budget policy has caused a storm of mixed reactions in mass media. Today, Germany seems practically to be the only country in the Western world that fully understands what is actually happening on the continent and the fact that the ongoing crisis processes are affecting its economy in an extremely negative manner. All the other countries, notably, not only the EU member states, prefer to pursue a quite more liberal policy similar to those recommended by the World Bank and International Monetary Fund, despite the obvious fact that such policy has recently not yielded any positive results in terms of stabilization of the overall situation in the global economy.
For the United States, the Canadian summits took place against the backdrop of the unprecedented environmental disaster on the Mexican Gulf. Experts are currently divided on their assessments of the scales of the catastrophe, its consequences and the measures taken by the U.S. government and BP to address the situation. The interesting fact is that the actions being taken by the U.S. authorities do not get serious coverage in the global media as they are largely regarded as U.S. purely domestic issues. At the same time, the consequences of this accident may go out beyond the boundaries of the Mexican Gulf Coast region. They will not only negatively impact on the hydrocarbons market, causing a possible loss in BP’s positions on the market and consequently, a potential redistribution of the industry shares among its key players, but also may affect other spheres of global affairs that are not directly related to the tragedy, such as the global climate.
The context of the G8/G20 summits was also shaped by the People’s Bank of China’s announcement of its intention to continue the reformation of its exchange policy and increase the flexibility of the Yuan exchange rate. This action had been expected for a long time, and is in line with the general policy that is being promoted by the World Bank and International Monetary Fund. On the whole, it may indicate the willingness of the Chinese government to engage in a dialog, or to be more exact, to bargain with the U.S. government on these issues.
Having gathered, as expected, to discuss a host of pressing global issues, ranging from international security and Iran’s nuclear problem to the state of the world economy, situation in the so-called most vulnerable countries and global climatic changes, the leaders of today’s post-industrial world that accounts for 80% of the global GDP were unable to work out a clear actions strategy. Consequently, there was no final decision on a “roadmap” out of the crisis, a term so dear to the hearts of most Western experts. Like before, the G8 members, and later, the G20 leaders, did not put serious efforts to try to reach some agreements on a global strategy for the post-crisis development of the world economy. Instead, they got bogged down by discussions over the attainment of tactical objectives of management and leveraging the existing global monetary and financial systems.
One of such issues was Great Britain’s proposition to introduce a new tax on bank transactions, which is somehow similar to the famous ‘Tobin Tax.’ Nobel Economics Prize laureate James Tobin proposed the introduction of a tax on foreign currency transactions to boost the stability of foreign currency exchange rates after the collapse of the Bretton Woods Treaty system in 1971. Since then this proposal has become very famous, thanks to political and economic debates that are conducted on a regular basis as experts search for more effective mechanisms to expand the taxation for other types of financial transactions. However, this proposal, an interesting offer on its face value, has a serious drawback: it does not fundamentally influence the core of the existing financial system, thus leaving open the possibility for probable recurrences of crises in the future in the global economy. On the whole, as expected, the proposal on the introduction of the banking tax sparked more active discussions and, by virtue of its ambiguity, resulted in a deeper rift among the summiteers.
G20 member countries: Great Britain, Germany, Italy, Canada, Russia, US, France, Japan, Australia, Argentina, Brazil, India, Indonesia, China, South Korea, Mexico, Saudi Arabia, Turkey, South Africa and EU.
The main difference manifested itself in two diametrically opposing views — U.S. and European approaches — on how to further develop the global economy. The European approach envisages a strict financial discipline and toughening of social policies in EU counties. According to European experts, strict adherence to such policy, whose author and staunch advocate is Germany, will not only help the EU countries to maintain some form of stability in the existing uncertain environment, but also will enable them to lay a solid foundation to foster the revival and growth of their economies in the nearest future. At the same time, the policy authors agree that the implementation of such measures will result further fuel growth in social tension as they will impact directly on key social issues. These experts, however, believe that such social sacrifices are needed to ensure a brighter future for a consolidated Europe.
The opposing strategy offered by the United States envisages a comprehensive stimulation of demand via continued governments’ support for their economies through constant infusions of capital. Indeed, it would have been surprising to see a different position from the United States, which has the emission center for the world’s most highly demanded reserve currency under its direct and unilateral control. Under such circumstances, it is rather difficult for the United States to resist the temptation to maximally use this competitive advantage, more so as it has so far been successful in exporting all fiscal problems resulting from its relentless inflation to other countries. Today, the United States is the only country in the world that secures state borrowings and repays loans in its own currency. Therefore, the more devaluated the dollar is against the other major global currencies, the easier it is for the United States to repay its state debts. It needs to be noted here that the soaring state volume of U.S. state debts is one of the key factors fueling the current instability in the global monetary and financial systems today.
However, all these are only weak attempts at a “cosmetic overhaul” of the fast disintegrating structural foundation of the relationships between key global players in the financial, economic and political spheres, otherwise known as the world order. The fact is that the latest G8/G20 summits have demonstrated the total ineffectiveness of such relationships format for making viable decisions at a global level. In reality, the situation is much more serious, and goes far beyond the scope of proposals for the introduction of a particular tax or a specific relationships format. The most important issue here is the utter demolition of the world order that resulted from the end of WWII, which had existed during the years of formation and development of the post-industrial society in the second half of the 20th century, and the fact that no new adequate system capable of replacing the old order has been offered.
The disequilibrium in global affairs has kept on accumulating, while an effective system to resolve it has yet to 
evolve. This poses a threat of bringing the global situation to a state, where a radical solution of the so-called ‘Gordian Knot’ in modern civilization will be needed, and such solution could involve the option of using a military force. The fact that the current global situation is a far cry from what it should be toady, as evident in the light of the mixed or ambiguous results of the Canadian summits, is also confirmed by a number of events that have occurred more or less simultaneously in recent times.
For Russia, this ambiguity in the current situation has manifested itself in the so-called notorious ‘spy scandal’ which had been timed by the U.S. secret services officials to coincide with the summits. Russia was again given a gentle ‘flick on the nose’ and shown its ‘appropriate’ place in the global system. Such a ‘friendly gesture’ within the frameworks of the newly “reset relationships” policy between Russia and United States has forced experts to think seriously over what is really happening between the two countries. The next step in the “reset relationships” plan was U.S. State Secretary Hillary Clinton’s five day official visit to Ukraine, Poland and South Caucasus. Expectedly, not all the results of this tour were of benefit to the further development of the bilateral relationships between Moscow and Washington.
On the whole, the bottom line of experts’ current opinion is that the situation in the world, which is being increasingly characterized by the loss of a clear idea of reality and the developed world’s total loss of control over global issues, will fuel more uncertainty that could result in further growth of tension in the world, while all types of ‘G-formatted summits’ have so far failed to resolve the accumulating differences among global leaders. It is obviously clear today that the world urgently needs new and much more effective mechanisms of relationships among all key international leaders to solve current challenges and move forward. The current situation in today’s world explicitly and urgently calls for a speedy development of such mechanisms.
Web design,