The Relevance of G-8 and its “panacea” for European Economic Crisis

| by Mathews George Chunakara[*]

( May 22, 2012, Geneva, Sri Lanka Guardian) When the leaders of G-8 met at the Camp David last weekend to address major global economic and political challenges, they wrapped up their negotiations on the European economic crisis with a pledge to keep Greece in the Eurozone and to promote growth. The Camp David Summit finally went in favour of president Obama and the new French president, François Hollande, over German Chancellor Angela Merkel who has resisted calls for a stimulus package. Obama had been able to muster the support of other G-8 leaders to exert pressure on Germany to opt for more pro-growth policies to arrest the deepening debt crisis in Europe, which is opposing Chancellor Angela Merkel’s “one-size-fits-all approach” accentuating austerity measures. Although chancellor Merkel, agreed to the final formulation of a G-8 Communiqué declaring the growth promise at the top, especially emphasising in its opening paragraph: "Our imperative is to promote growth and jobs", it is generally perceived that the communiqué has not been totally in favour of Merkel’s interests. It was reported that president Obama and U.K prime minister David Cameron clashed with Chancellor Merkel at the meeting, demanding that she should drop her resistance to the G-8 for setting out a clear path to bring Europe out of its crisis. G-8 leaders such as Obama and Cameron asserted their positions and they favoured keeping the Eurozone intact, including Greece. Their views were reflected in the communiqué which stated: "we welcome the on-going discussion in Europe on how to generate growth, while maintaining a firm commitment to implement fiscal consolidation to be assessed on a structural basis. We agree on the importance of a strong and cohesive Eurozone for global stability and recovery, and we affirm our interest in Greece remaining in the Eurozone while respecting its commitments." Obama was in favour of Europeans adopting a stimulus package similar to the one he had initiated in the U.S three years ago.

 (L-R) European Commission President Jose Manuel Barroso, Russian Prime Minister Dmitry Medvedev, Japanese Prime Minister Yoshihiko Noda, Canadian Prime Minister Stephen Harper, French President Francois Hollande, U.S. President Barack Obama, German Chancellor Angela Merkel, British Prime Minister David Cameron, Italian Prime Minister Mario Monti, and European Council President Herman Van Rompuy pose for a group photo during the 2012 G8 Summit at Camp David May 19, 2012 in Camp David, Maryland. Leaders of eight of the world’s largest economies meet over the weekend in an effort to keep the lingering European debt crisis from spinning out of control. Image Source: Getty Images

The G-8 leaders affirmed this also in the final communiqué, saying “a strong and cohesive Eurozone, is important for global stability", and added "Greece should remain in the Eurozone". They also emphasised that “robust international trade, investment and market integration are key drivers of strong sustainable and balanced growth”, and underscored “the importance of open markets and a fair, strong, rules-based trading system”. However, the practical application to solve the current crisis in Europe was not outlined as part of their deliberations at the Camp David summit. While there was nothing new gained by Chancellor Merkel and other EU leaders in this regard from the G-8 summit, the worrisome scenario they will have to face is how to deal with Greece, "the sick man of Europe,". The question they are faced with is whether it's worth spending billions more Euros of their tax payers’ money to save Greece. The main problem of the German Chancellor is on how to face the stiff opposition at home if she advocates for more bailouts of its neighbours.

On the one hand the EU leaders don’t believe that a Greek decision to leave the Euro zone will mean the end of the Euro. The best case scenario predicted would be to see Greece remain inside the Euro but its huge 274 billion Euro of outstanding debt put on a more sustainable path. The concern is that the European taxpayers would have to be convinced of the need to write-off 60 billion Euros of the 182 billion Euros of rescue loans they have provided. The other side of the coin is that if Greece was to leave the Euro zone, the total loss estimated would be at least 224 billion Euros as the new currency of Greece would halve in value as well as another 104 billion Euros of additional emergency funding by the European Central Bank that would be wiped out. The Greeks are frustrated with the dwindling economy of their country, affected with rising unemployment and rigorous austerity measures imposed on them. The economy of Greece which mainly relies on agriculture and tourism accounts only for just 5% of the European Union's economic output. The worry will be whether they will be forced to pay higher prices for imported goods which makes their lives more stressful which would also be likely to take years to recover.

The other concern is about the emerging political scenario in Greece, which doesn’t give a hopeful sign of reforms insisted on by Chancellor Merkel and her supporters. Chancellor Merkel, prior to the G-8 summit in an interview with an American television channel, echoed her concern of Greeks’ deep troubles by indicating that a way might still be found for Greece to be allowed to focus on economic growth, even within the parameters of its debt-payback obligations. But in response, Alexis Tsipras, who leads the Coalition of the Radical Left of Greece and who currently leads public opinion polls, challenged Merkel’s suggestion. Other European political leaders also unequivocally instructed that the Greek electorates take a stark option: “either they have to vote for parties that will continue with the agreed reforms of austerity measures and stay within the EU family or vote for parties opposed to the austerity measures and leave the Euro and perhaps the European Union eventually”. Merkel is not the only one who insists on strict measures on Greece. Austrian Finance Minister Maria Fekter also conveyed a clear and concise message recently to Greece and she declared that if Greece does not stick to the terms of its bailout programme, it will not receive further aid from the EU or the International Monetary Fund. Maria Fekter said, "one cannot exit from the Eurozone, one can only exit from the EU". She also noted that Greece would have to reapply for EU membership, with no guarantee of readmission. These firm positions of other EU leaders are now posing serious questions to the relevance of G-8’s declaration and the panacea suggested by the G-8 leaders at the Camp David summit.

Despite the fact that Obama and Hollande could establish their positions firmly on “the importance of a strong and cohesive Eurozone for global stability and recovery”, the question being raised is about the continued relevance of the G-8 in today’s global scenario, especially its lack of capability to manage and contribute to boosting today’s global economy. The absence of some of the world's rising economic powers -- such as Brazil, China, and India – has been pointed out as a deficiency in addressing the European economic crisis effectively. This also rightly calls into question the G-8's ability to direct the global economy. In a situation of a decreasing share of the economic resources and clout at the group's disposal, critics of the G-8 are raising questions on the relevance of the group in today’s global context. They advocate the need for replacing the G-8 with a more inclusive body such as a G-14, or a G-20.

Regarding the role of the G-8, to replace it with much wider functions in the economic arena raises another question on the relevance of its traditional role in addressing important international security initiatives. The annual meetings of the G-8, since the 1980s, have given attention to important security functions. The Camp David summit also addressed several of such issues like, energy and climate change, food security and nutrition, Afghanistan’s economic transition, Middle East and North Africa, non-proliferation and disarmament issues, obligations under the Nuclear Non-proliferation Treaty and, concerns about the severe proliferation challenges, etc. The current G-8 structure has a flexibility to address such issues as well as additional concerns, but the main drawback while attempting to transform the group may raise a question on how these important security functions will be included in an alternative structure that is proposed in the place of current structure. The advantage of the existing membership of the G 8 is that it includes most of the world's major military powers, which accounts for three-fourths of the world's annual military spending; the countries that host the leading companies producing arms , and countries that possess about 90 per cent of the world's nuclear weapons.

Although G-8 leaders adopted a declaration that affirmed the importance of a strong and cohesive Eurozone for global stability and recovery and the need for Greece remaining in the Eurozone, the fact remains that the G-8 is no longer a club of economic power houses which can control the global economy that it once was. With the emergence of the G-20 as the preferred and more inclusive forum for economic governance, the G-8 is now considered as a relic from a bygone era. As the centre of gravity of the global economy has shifted to Asia, and the financial problems of Western countries have been accentuated now by the deepening financial crisis, the monopoly of Western economies also has become untenable. It is in this context that the relevance and effectiveness of the Camp David Declaration of the G8 leaders prescribing a panacea for the European economic crisis is under question.

[*] Dr. Mathews George Chunakara is Director of International Affairs of the World Council of Churches in Geneva, Switzerland