The G20 Summit: And the river of indecisiveness continues to flow….
Cannes, the glamorous seaside town in the south of France, and home to Tinsel Town’s glitterati during the Cannes Film Festival, welcomed a different kind of glitterati this month. On the 3rd and 4th of November, Cannes played host to an international body of the world’s leading economic powers at this year’s G20 summit. G20 members meet on an annual basis to discuss pressing economic issues affecting member countries and the rest of the world, as well as to plan economic matters for the future. The success, however, in terms of concrete, effective decision-making varies considerably from year to year as any follower of foreign affairs is aware of.
The G20 summit ensures the world’s presidential class are generously treated to accommodation in sprawling resorts and luxurious hotels, but also ensures they stay on task, discussing matters of global economic importance. Included in the smorgasbord of topics that were discussed this year were banking regulation, commodity market transparency, enhancing the IMF’s response capacity and surveillance as well as financial stability. The Euro zone crisis – specifically the debt crises of Greece and Italy that have resulted in their economies teetering on the brink of a financial apocalypse – was, however, THE topic of paramount importance.
On the first day of the summit, the world’s most important leaders remained quiet spectators in the discussions on the dramatic political and economic crisis in Athens. Indeed, American President Barack Obama was described to be no more than a mere sideshow as German Chancellor Angela Merkel and French President Nicolas Sarkozy appeared to be at the vanguard of an attempt to work towards a plan to solve the crisis.
Dealing with Greece
At this year’s G20, European leaders were forced to confront directly and publicly the chances of an economic explosion that until very recently seemed possible to prevent or at least stop; the economic disaster being of course a default by Greece and its subsequent departure from the Euro. Greece has been living beyond its means since even before it joined the EU due to a variety of reasons- one being alleged heavy internal corruption. The lavish spending and unfortunate corruption have contributed to Greece’s now rising debt that has placed a tremendous strain on the country’s economy. Public spending rose inexplicably and public sector wages as per a November 10th BBC Q&A report on Greece’s debt crisis have almost doubled in the past decade. Greece is in a little more than 340 billion Euros of debt, which for a country of 11 million people makes for a staggering figure of about 31,000 Euros per person. The real issue is that while money gushes out of the government’s chest of finances at an accelerating pace, income is being hit by a widespread phenomenon of tax evasion in the country, causing a regional economic meltdown.
Despite receiving a bailout loan of 110 billion Euros in May 2010 and then a similar amount in July 2011, Greece has been unable to solve the crisis.
Moving on to Italy;
As put in the article “The Burning Fuse” on the Charlemagne Blog of ‘The Economist’, Greece is not the only “barrel of gunpowder” that Europe and the rest of the world have to worry about. There is in fact a “whole dump of high explosive called Italy” right next to the barrel labelled Greece. Italy is indeed stirring up just as much concern about regional economic stability amongst European leaders, the IMF and the rest of the world.
Italy, where, just like in Greece, elected leaders are increasingly being replaced by technocrats who made their careers outside of politics, drama is again seen as the genre of choice. While Italy continues to sail deeper into the ocean of financial disaster, at-the-time Italian Prime minister Silvio Berlusconi seemed to be anything but distraught at the G20 summit, reported by the Washington Post as being in “fine form”. You would expect him to be at least a little worried considering the lack of confidence blanketing Italian markets and the soaring borrowing rate (now above a threshold of 7%) that even compelled Italy’s neighbors to seek international assistance. Italy’s problems may be a result of much more than just a collapsed government and excruciatingly high borrowing costs, and could root back to its unsustainable birth rates: in the last four years, Italy has had more deaths that it has had births.
Thus, in the throes of one of Europe’s most severe crises and in an attempt to garner help from some summit attendees, European leaders tried to approach China.
Despite its commendable economic standing, China is a country where poverty is still rife and wages are a fraction of those in the West. Unsurprisingly, China appeared unwilling to assist the Europeans at this time. The country could understandably be wary as to how, when, where and to what purpose its reserves built over 30 tough years of reform would be used. The Chinese population seems to share its leaders’ decision: on the microblog “Sina Weibo”, nearly two thirds of a poll responders opposed China’s financial assistance to Europe at present. When the US and Europe have figures of 10 trillion dollars in consumption, why would China with its tiny 2 trillion dollars in consumption have to bail out the Western countries? Hu Jintao and his Chinese aides quietly slipped away from the summit despite indirect pleas from European leaders to help them out.
This year’s G20 summit at Cannes was no Bretton Woods in term of outcomes, but the current European issues needed to be discussed. Global leaders and the IMF will soon have to make a fiscally consolidating decision – keeping in mind the fact that the Euro zone crisis is amplified by the very leveraged manner of banking in some countries (Greece). We can only hope for some form of a plan to alleviate the Euro zone of its current impediment sooner rather than later.
– Nikita Pillai