Even though the German G20 Presidency does not formally begin until December 1, 2016, it has already begun preparations for the 2017 Summit process. In addition to Germany (2017 President), the new Troika consists of; China (2016 President); and Argentina (2018 President). The G20 is likely to hold some 70 ministerial and working group meetings before the next Summit takes place in Hamburg, Germany in July 2017.
2017 G20 German Presidency will focus on the three themes, or pillars: Resilience; Responsibility;and Sustainability.
Each pillar will include a list of policy priorities, which Chancellor Merkel will announce ton December 1, 2016. This blog only conveys the impressions we have gathered from German and U.S. sources; the China G20 Summit process; and InterAction.[i] What we understand is that the Presidency will promote three pillars, as shown below.
The German G20 will not introduce new issues onto the already full G20 finance agenda; instead, it will focus on implementation of existing commitments with an emphasis on the policies in the table (above).
It will continue the G20’s long-term work on the Framework for Strong, Sustainable and Balanced Growth. The G20’s “Framework Working Group” manages this important work stream.
Due to contested fiscal and monetary policies, the G20 relies heavily on the anticipated potential for attracting private sector investment when countries adopt the new Enhanced Structural Reform Agenda. A revision of this 9-point Agenda should incorporate sustainable development (e.g., labor, environment) and address the valid claims made by those involved in a popular backlash against globalization and free trade. (See critique here.)
- RESILIENCE…. Enhancing resilience of economies to withstand shocks
DEBT. Germany has an important goal – namely reducing unsustainable debt burdens. Debt overhang and “fixing the balance sheet” are key issues, as the piles of public/private debt must be addressed in order to have fiscal leeway. In addition to the rise in sovereign debt levels, there is evidence of rising corporate debt in Emerging Market Economies (tripling bond issuance), which is noted here. Some corporate debt is widely considered unpayable. The private sector holds two-thirds of total world debt which stands at $152 trillion (225% of world GDP in 2015). Therefore special efforts to reduce public and private debt are needed to make the real economy more robust. Insurance solutions are also viewed as crucial to building resilience.
FISCAL POLICY. There are many ways to promote growth. As noted above, the G20 member countries do not agree on the question of whether or how to use fiscal stimulus, as the G20 did in 2009 to help recover from the global financial crisis. To little avail, the U.S. and others have pressured Germany to adopt a strategic approach to using fiscal stimulus to promote growth. Germany has emphasized that fiscal coordination will not be on the G20 agenda, although there are individual country initiatives such as larger deficits (Canada, U.S.); reducing surpluses (Germany) or delayed deficit reduction (France, Italy, Japan). Fiscal consolidation is occurring in Latin America and Russia.[ii]
REGULATION. With regard to financial regulation, the emphasis is on implementation and monitoring. The financial regulatory response to the Global Financial Crisis is the largest legal effort ever, so implementation is key. Shadow banking has been renamed “Non-regulated Market based Banking” or “Activities formerly known as Shadow Banking” and there is tension over whether or how to regulate these huge shadow flows. There are still major concerns with Central Counterparties that are “Too Big to Fail”, despite the work by the Australian G20 on “Total Loss Absorbing Capacity”, which helps ensure that global, systemically important banks have sufficient resources to absorb losses and be recapitalized if they fail.
EVALUATION. The Bundesbank will develop a structured framework of the evaluation of the results of financial regulation. This could be a very worthwhile contribution.
PRODUCT SAFETY. The civil society proposal for a financial product safety commission might be explored.
- INCLUSIVE FINANCE AND DIGITIZATION (FinTech)
FINTECH. According to McKinsey Global Institute, 12% of the global goods trade conducted via international electronic commerce (e-commerce). Such trade is one aspect of the term “FinTech,” which refers to any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even blogchain based crypto-currencies like bitcoin.
Given the speed at which FinTech is governing financial transactions, an array of public policy questions become key, such as: how to tax businesses that exist in the “Cloud”, how to ensure that the innovations do not destabilize the global financial system (especially given problems such as state-led, or backed, commercial cyberespionage), or how to ensure that technologies are harnessed to lead a new industrial revolution.
TRADE AND DIGITIZATION. At this point, it is unclear whether Germany will seek to make digital trade a feature of its trade agenda. In a recent speech, U.S. Trade Representative Michael Froman declared the effective end of the Doha Development Round of trade talks which began in 2001. Froman said that „when Doha was launched, the Internet was a novelty, global supply chains were beginning to emerge and smart phones were just a dream. Today, the digital economy is revolutionizing everything from advanced manufacturing to the way in which services are traded across the world.” The United States and its partners from around the world will focus on “pragmatic multilateralism” that focuses on not only digital trade and digital economy, but also, fisheries subsidies, Micro-, Small- and Medium-Sized Enterprises, and domestic regulation in services, according to the “South-North Development Monitor (SUNS).[iii]
Digitalization will also be taken up in the G20 Development Working Group agenda as it relates to taxation, industrialization and other priorities.
Other priorities may relate to
- International Financial Architecture
- Trade and transparent global value chains (GVCs) to improve health and safety at work
The priorities include: Agenda 2030; Participation, particularly for women; refugees and migration; and the Africa Compact. Health is a significant priority for Chancellor Merkel, possibly including support for ongoing G20 work on Antimicrobial Resistance (AMR) and the fight of pandemic diseases, which implies exploring measures to address potential market failures. The Science 20 will explore options related to publically funded research, particularly at its March 22, 2017 meeting in Halle.
Comments on three priorities follow.
AFRICAN COMPACT FOR INVESTMENT, especially in infrastructure. Chancellor Merkel’s recent speech in Ethiopia highlights three priorities for her G20 Presidency: the role of the private sector, infrastructure and vocational training. Germany will host a major African Partnership conference on June 12 – 13th.
The idea is to execute investment compacts with African governments that would represent frameworks for infrastructure and pave the way for private industry. (Compacts may be designed with the United Nations “Global Compact”.) Perhaps Germany will also revive aspects of its “investment for development” initiative which was advanced during its G8 presidency of the 2007 Heiligendamm Summit.
The question remains how to make infrastructure investment coherent with sustainable development and climate goals? It is worrisome that some Finance Ministers view this as the concern of the G20 Development Working Group, not of their “Finance Track”, but there are signs that this may change for the better as Finance and Development ministers are supposed to meet back-to-back with the African Compact Conference.
The Finance Ministries are concerned about African debt. In that regard, the big question is: how could-large scale borrowing for infrastructure be justified given the fact that many African countries are highly indebted? Is it realistic to hope that investment will generate productivity and growth to facilitate repayment? Optimism will be tempered with some realism given not only the debt, but also low growth, a potential banking crisis, a slowdown in China (Africa’s major trading partner), depreciating currencies, and expanding deficits (especially given the decline in export revenues due to low commodity prices).
THE 2030 AGENDA FOR SUSTAINABLE DEVELOPMENT. According to the 2016 G20 Communiqué, the G20 will work on the Agenda “based on [its] comparative advantage and the added value” and in accordance with [its] national circumstances. A review of the G20’s Action Plan on the 2030 Agenda shows that the Action Plans of many of the individual G20 member countries are half-hearted, at best.
For its collective work on the 2030 Agenda, the G20 has defined 15 “Sustainable Development Sectors” (SDSs) and identified how its work in each “sector” (e.g., infrastructure) or “theme” (e.g., growth, trade, investment) will contribute to the Sustainable Development Goals (SDGs). The main problem with the G20’s Action Plan is that it is unclear what the causal connection is between the G20’s SDSs, on the one hand, and their achievement of SDGs, on the other.
As this analysis shows (see the appendices here), the G20 SDSs focus primarily on seven SDGs – namely, No Poverty (#1); Decent Work and Economic Growth (#8); Industry, Innovation and Infrastructure (#9); Reduced Inequalities (#10); Responsible Consumption and Production (#12); Climate Action (#13) and Partnerships for the Goals (#17).
Finally, The German G20 Presidency is likely to initiate a system to help monitor progress on this universal 2030 Agenda.
EDUCATION, TRAINING AND EMPLOYMENT. Each G20 member country may update its Employment Plan in 2017. There will be an emphasis on vocational training, especially for girls and women in developing countries (aiding overall reduction in poverty and inequality). Civil society is also calling for a focus on childhood and primary school education.
This pillar will focus on:
- Climate policy (the Paris Agreement), removal of fossil fuel subsidies, carbon pricing
- Sustainable Growth
- Agenda 2030 (see above)
- Marine protection
“Sustainable Growth” and “Agenda 2030” also appear under the “Resilience” and “Responsibility” pillars, respectively.
An “Energy, Environment & Sustainability Working Group” may be created to focus on climate-related financial disclosures, development of green bonds, clean infrastructure investment, climate finance, and energy efficiency. Previously, there was an “Energy Sustainability Working Group” which may have had a narrower mandate than the one envisioned for 2017.
[i] Thanks to Soniya Sharma, InterAction, US.
[ii] Robert Kahn, “The G20 Disappoints on Policy,” Global Economics Monthly, Council on Foreign Relations, September 2016.