Defying the Obama administration's recommendations, world leaders at the weekend's G-20 summit agreed to halve their deficits by 2013. The Daily Beast looks at the summit’s tough choices—and who wielded the most power.
In an effort to curb growing public debt, the Group of 20 nations have agreed on a tight timetable for cutting their deficits. Canadian Prime Minister Stephen Harper proposed two targets: Cutting government deficits in half by 2013, and stabilizing nations' GDP/public debt ratios by 2016. Both goals were well received by European leaders. But because of objections from other G-20 countries—including the United States, Japan, and India—the target has been framed as an expectation rather than a firm deadline: The deficit is to be "tailored to national circumstances," according to a group statement. Japan is exempt from the timetable. President Barack Obama has been vocal about his wariness of withdrawing spending programs too quickly, but other nations are concerned about the European debt crisis.
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What’s at Stake at This Year's Summit
This year's G-20 arrives as the global economy is taking baby steps toward stabilization, and the attendees—a mix of developed and developing nations—will attempt to hash out differing opinions on how to continue that trend. The main focus this year is coordination—each individual country's recovery efforts must work in tandem so that they aren't thwarted by interconnected markets working against each other. The leaders also need to figure out how each of the various nations will begin to wind down their stimulus and bailout plans without pitching themselves—and each other—back into financial meltdown. U.S. Treasury Secretary Timothy Geithner is urging Europe and Japan to boost their own domestic demands, as China has done, saying major economies are not doing enough to encourage growth. Also on the agenda are discussions on how to reform international finance institutions like the World Bank.
Obama Wants Stimulus, Europe Wants Austerity
President Obama held a mixed hand as he headed to Toronto. Congress just reached an agreement for a major overhaul in regulations of the financial industry, a big victory for the president. But the Senate was unable to overcome a filibuster of another economic stimulus package, hurting Obama’s ability to make the case to already-reluctant foreign leaders that governments worldwide must continue to stimulate their economies instead of passing austerity measures. Several European leaders, shaken by the recent debt crisis in Greece, seemed to have made up their minds: both Germany’s Angela Merkel and Britain’s David Cameron arrived at the G-20 having just proposed strong belt-tightening measures at home, and Canada’s Stephen Harper praised Cameron’s fiscal restraint. Those countries are willing to accept a short-term slowing of economic growth as the price of longer-term gain in market confidence, one economist said.
We're All In This Alone
“The ‘fellowship of the lifeboat’ will be harder to maintain as the acute crisis passes,” said Stewart M. Patrick of the Council on Foreign Relations. In other words, the severity of the crisis has lessened, and this may make it more difficult for the group to come together on important issues. “During the last three summits, it was much easier for countries to reach agreements, such as implementing stimulus packages, because everybody was trapped in the crisis, and they were sitting on the same sinking boat. But now, everyone has recovered, although to different degrees, and begun to make selfish calculations again,” said Prof. Niu Xinchun of the Institute of American Studies in China.
A Shifting Power Dynamic
The nations gathering at the G-20 break down into two basic categories: those that have built their wealth on finance and so-called creative industries, and those who still rely on bricks-and-mortar economies. Pundits and politicians have been touting the high-tech information economy as the best way to keep America at the top of the global food chain. But though iPhones are pretty and hedge funds impressive, a quick look at history—and the recent financial crisis—shows that the decidedly less glamorous manufacturing industry is the best engine for growth, argues Joel Kotkin for The Daily Beast. While the U.S., Europe, and Japan struggle with budget deficits, bank bailouts, and sky-high rates of leverage, countries that have held on to “basics”—raw materials, agriculture, and manufactured goods—are currently the world's fastest growing economies (Brazil, Turkey, India, South Korea) and the most stable (Canada, Australia.) As a result, this year's G-20 is seeing something new: a subtle but unmistakable shift in power, in which countries that grow things, mine things, and make things are able to assert themselves uniquely.
Can Angela Merkel Succeed?
Germany’s first female chancellor, and arguably the European Union's most powerful leader, has been popular since she came into office in 2005. But several recent decisions have turned people against her, both at home and abroad, causing her popularity to wane and her political clout to erode. Her budget cuts in Germany were unpopular (both with her own voters and with President Obama), and her reluctance to save the euro is irritating to the French. Germans are also generally against bailing out Greece, which caused her to drag her feet before ultimately signing a $1 trillion bailout package; this hesitancy helped spur a confidence crisis in Spain and Portugal. All of which means Merkel goes into this year's G-20 with diminished capital to argue for her positions.
10,000 March Against the Summit
Thousands of protesters gathered in Toronto to protest the G-20 summit, with an array of causes that ranged from women's poverty to climate change. The vast majority of the protests were peaceful, but a group of about 100 protesters splintered off on Saturday afternoon to wreak havoc, smashing shop windows and setting fire to two police cars. The violence, however, was still far less intense than that doled out by European protesters recently in France and Greece, who were rallying against some of the very austerity measures being debated at the summit in Toronto this weekend.
Will America's Financial Reform Make a Difference?
The U.S. arrives at the G-20 fresh from passing landmark finance-reform legislation, which should, in theory, strengthen America's position and the summit as a whole. But these days, one country's diligence in regulating its own finances doesn't necessarily help fortify the global economy as a whole. "The U.S. financial regulatory reform does not address the core underlying issues associated with the interconnectivity of markets, with the global derivatives market or even with macroeconomic issues," says David Rothkopf, a former official in President Bill Clinton's administration. Which is to say that, ironically, America's recommitment to economic fidelity only highlights a growing problem: When one nation cracks down with new regulations, globalized financial players simply seek out profits elsewhere.