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Prospects for the Pittsburgh Summit

By John Kirton and Jenilee Guebert, G20 Research Group
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The G20 is still evolving, but with an agenda broadened beyond financial and economic issues, it has the potential to make progress on climate change and development

On 24-25 September 2009, the leaders of the G20 systemically significant countries will assemble in Pittsburgh, Pennsylvania, for their third summit. It follows the first summit in Washington DC on 14-15 November

2008 and the second in London, on 1-2 April 2009. With the G20 summit moving from Britain back to America, Pittsburgh will be the first opportunity for United States president Barack Obama, sporting substantial popularity at home and abroad, to host a global summit and to make history on the world stage.

The Pittsburgh Summit will address a broad agenda. It will build on the ambitious achievements of British prime minister Gordon Brown’s successful London Summit, and go beyond it in several ways. The precise agenda and achievements depend on several unfolding events. Unlike the long established institution of the G8 summit, operating since 1975, the new G20 summit is an evolving process whose full potential is still being discovered and designed by its members and hosts. The G20 summits’ great initiatives have come to life only on the eve of the event. With their strong financial and economic focus, G20 summits depend on the emerging state of the global economy and financial system at the time they are held. The Pittsburgh Summit will also be affected by the outcome and prospects of elections in the world’s second most powerful country, Japan on August 30, and in the third most powerful, Germany on September 27.

Amidst its many possibilities, Pittsburgh is likely to feature a full-strength agenda, spanning the finance and economic, global and transnational, and even political-security spheres. Macroeconomic stimulus, responsible bankers’ bonuses, multilateral trade liberalisation, reform of the international financial institutions (IFIs), climate change control and G20 architecture will all share centre stage. Currencies, most domestic financial regulations, an economic charter for ethical finance, anti-protectionism, development – including food and health – and Iran’s nuclear programme will take second stage.

Pittsburgh’s main message will be to stay the course on stimulus, rather than rush to the exit strategies. Germany and France, encouraged by economies that are growing again, will want the G20 to direct political energies toward removing the massive fiscal and monetary stimulus that seems to be working in diminishing the threat of another great depression and in reviving the world. But the United States, Britain and Canada have economies that are still struggling, with unemployment rising and consumption and confidence sharply constrained. They will argue that the fragile recovery is the result of unprecedented government stimulus that must be maintained until the private sector market, firms and consumers start functioning normally again. Backed by most other G20 members, this view will prevail. But firmer plans will be put in place to design careful, coordinated exit strategies, to be activated next year if all goes well. Real action on exchange rate volatility and misalignments, international imbalances and a global currency regime will be left for later, when economic recovery has definitively arrived.

On domestic financial regulatory reform, most of the devilish details will be left for the knowledgeable G20 finance ministers to decide at their regular meeting in November. At Pittsburgh, the G20 leaders will call for responsible compensation practices for private firms, to quell the mounting anger of their citizens and legislatures in America and elsewhere. In keeping with the G8’s recent promise, they will approve the Italian-pioneered Lecce Framework as a codification of existing intergovernmentally agreed rules on how firms should behave. They could also endorse, two days before Germany’s general election, the economic charter proposed by Chancellor Angela Merkel, thus adding an ethical foundation to the fixed rules that can quickly be overwhelmed by a fast-changing world.

On multilateral trade, G20 leaders will again take a firm anti-protectionist pledge. They will ensure that trade finance flows from public providers until it resumes from the private sector. The leaders will focus on building on the L’Aquila G8 Summit’s move to get the Doha round finally delivered by 2010, in ways that, while modest, genuinely support development for the poorest in the world.

Development will also be addressed in its own right, with a push to deliver the targets for official development assistance promised by the developed countries to be completed by 2010 and to meet the much bigger Millennium Development Goals due in 2015. But Pittsburgh is unlikely to match the $1.1 trillion in new money that London mobilised to meet the immediate needs of the poor and generate global stimulus, too. Pittsburgh will try to implement these London commitments, and ensure that the new resources are used effectively to combat the current food and health crises.

As London gave the IFIs the expanded resources they greatly needed, Pittsburgh will concentrate on reforming these institutions to give the rapidly rising, largely resilient emerging economies the expanded voice and vote they seek, in bodies with modernised missions and mandates appropriate for the 21st-century world. With the deadlines of spring 2010 and January 2011 for a revision of quota shares in the World Bank and International Monetary Fund respectively, much will depend on whether the Europeans join the Americans and Canadians in giving up their privileges from 1944 to the emerging powers, largely from Asia, that matter so much today.

Pittsburgh’s most challenging and critical achievement will come on climate change. The summit could well deliver an acceptable framework for financing climate change mitigation and adaption. This is necessary, if not sufficient, for the still deadlocked negotiations for the United Nations conference in Copenhagen in December to create an effective carbon control regime to replace the failed Kyoto protocol one. G20 leaders will also advance green stimulus and investment, clean technology development, diffusion and transfer, and perhaps even an internationally compatible cap-and-trade regime, as well as green trade liberalisation for climate-friendly services and goods.

Pittsburgh’s largest legacy will come on G20 architecture, in its decisions about whether, when and where to hold the next summit and how to institutionalise a process that will have proven its centrality and worth to the world. Should the G20 leaders decide to hold another summit, to do so in the spring, in Asia, and, above all, choose April in the Republic of Korea, they will have given the G20 and global governance a great boost. They will have affirmed that this leaders-level club of leading, fully equal, established and emerging countries will reinforce the annual summer gathering of the ‘G8 plus’, providing responsible and effective leadership three times a year for an ever changing, intensely interconnected world. As President Obama wisely observed at the G20 summit in London in April: “I’m pleased that the G20 has agreed to meet again this fall, because I believe that this is just the beginning. Our problems are not going to be solved in one meeting; they’re not going to be solved in two meetings. We’re going to have to be proactive in shaping events.”

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