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Crisis Compliance with G7 Leaders' Videoconference Commitments

John Kirton, G7 Research Group
March 18, 2020

Two days after G7 leaders held their first ever emergency videoconference on March 16, 2020, the world is anxiously waiting and wondering if they will comply with the ambitious 33 collective commitments they made there on the COVID-19 crisis and on the economic and financial damage that it brought (Kirton 2020). People's anxiety is heightened by the post-call estimates that the COVID-19 crisis could kill up to 60 million people, equivalent to the deaths in World War Two, and that it could bring an economic and financial cost greater than the global financial crisis of 2008-09, or even the decade-long Great Depression from 1929 to 1939 (Wolf 2020).

It is thus vital to assess whether G7 members are complying with the ambitious commitments they made on March 16, whether these commitments and compliance are well tailored, targeted and timely, and whether they and other global plurilateral summit institutions will add more in the coming days.

One of the most promising of the G7's 33 commitments was the one it ended with "We … call upon the G20 to support and amplify these efforts." Here compliance started right away. A day later, on March 17, Saudi Arabia announced that it was organizing the first videoconference among G20 leaders to respond to the tightly tied health-economic-finance crisis still escalating around the world (Warren 2020). It remains to be seen if the full G20 leaders will make even bigger and bolder commitments and comply with them, in ways commensurate with the growing harms that the crisis has created then.

A second promising sign was the package of financial measures that all G7 members announced within the first few days after their meeting ended. By midnight on March 17, these measures were a multi-trillion dollar response, including the EUR 1 trillion in national guarantees that countries in the Eurozone produced (Politi, Mallet and Packard 2020).

The United States led with the Federal Reserve injecting USD 500 billion to support overnight lending and entering the commercial paper market and with the Trump administration and Congress signalling the production of USD 850 billion in fiscal support. Germany produced EUR500 billion in loans to firms, expanded export credits and guarantees, and deferred billions of euros in tax payments. The United Kingdom offered GBP 330 billion in emergency loan guarantees to business and GBP 20 billion in fiscal support. France provided a GBP 45 billion rescue package, promised it would nationalize firms if necessary, and gave GBP 300 billion to guarantee bank loans. Italy unveiled a fiscal rescue package of EUR 25 billion. Canada, on March 18, announced a package of CAD 82 billion. Spain, a critical component of the European Union member of the G7, unleashed EUR 100 billion in state loan guarantees.

How does this compare to the responses of the G7 and then the G20 to the global financial crisis of 2008-09, starting with the collapse of Lehman Brothers in New York City on September 15, 2008 (Kirton 2013)? In the following seven months, the G20 was elevated to the leaders' level with its first summit in Washington DC on November 14-15, and G20 members mobilized between USD 4 and 5 trillion in monetary and fiscal stimulus. At their second summit, chaired by British prime minister Gordon Brown in London on April 1-2, 2009, they announced an additional USD 1.1 trillion that they agreed to on the spot.

Today, the world needs much more than what the G7 leaders have already unleashed, and needs it fast and in additional ways. This is because this time is genuinely different in several important ways.

First, as with the one before in 1997-99 and the eurocrisis after in 2010-12, the 2008-09 global financial crisis was a fully financial one, born within the financial system and solved by the instruments there, used by leaders familiar with the world of finance, economics and business. This time, the source is a health crisis from a pathogen, whose characteristics remain substantially unclear, and whose confidence and behavioural impacts on society are uncertain and complex. None of the G7 or G20 leaders today has any relevant experience or expertise in health, of a bio-medical or public health sort. Russia's new disinformation campaign to destroy confidence in the G7 health messages and the G7 and western financial rescue measures, as reportedly identified by the European Union, could compound the problem.

Second, this time the direct and indirect impacts on health, the economy and the financial system come not just on demand but also on supply — in a world where the globalization brought by integrated supply chains and digital media is much more intense than it was a decade ago. This makes it less likely that the world will soon see the V-shaped recovery as in 2008-09 or after the deadly terrorist attack on the United States on September 11, 2001. It is more likely to be a severe recession, or even depression, lasting longer, although nowhere near the decade-long Great Depression in the 1930s that ended in World War Two, and the Holocaust and other horrors that it brought. Its memory powerfully haunted and inspired G20 leaders at their highly successful London Summit in 2009.

Third, this crisis comes with an additional, simultaneous oil price shock, with oil prices plunging as Russia and Saudi Arabia have created an oil price war. With oil prices now cut close to one third of their level when 2020 began, the energy sector is in additional distress. Saudi Arabia is less able to ride to the financial rescue as it has in financial crises past, and the oil price plunge than bankrupted Russia in August 1998 is still within living memory.

Fourth, although G7 leaders have come together to act, and G20 leaders will within the coming days, the BRICS leaders remain missing in action. It is a particularly bad time for Russia and Saudi Arabia to be distracted by their oil price war, with Russia chairing the BRICS this year and its summit in St. Petersburg in July, Saudi Arabia chairing the G20 and its summit in Riyadh in November, and the BRICS likely, as usual, to have a second summit on the margins of the G20 one in Riyadh. This will make it harder for the G20 to come together to take the big, bold, fast measures that the world urgently needs. With the BRICS having to coordinate five leaders' schedules to hold a videoconference, rather than the nine among the G7 and European Union and the 21 — at least — among the G20, one wonders why BRICS leaders have collectively been silent so far.

References

Politi, James, Victor Mallet and Jim Pickard (2020). " Western Nations Embark on Trillion-Dollar Virus Fightback," Financial Times, March 17.

Kirton, John (2013). G20 Governance for a Globalized World (Farnham: Ashgate).

Kirton, John (2020). "G7 Leaders Combine to Decisively Confront the COVID-19 Crisis," March 16, G7 Research Group.

Warren, Brittaney (2020), "The G20's Health Performance: Anticipating the Overdue COVID-19 Videoconference," March 17, G20 Research Group.

Wolf, Martin (2020). "The Virus Is an Economic Emergency Too ," Financial Times, March 17.

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