Yet again, the G20 Summit, held in Cannes last week, yielded insipid communiqués that merely rehashed past commitments, outlined policies the G20 countries are already doing, and reiterated the EU’s party line to assuage markets on the eurozone debt crisis. The FT reports that the G20 has once again proved meager results despite lofty promises, casting its own irrelevance against the gloomy realities of the world economy.
Drawing a parallel between the ineffectual coordination in the G20 forum with that of the EU’s internal faultlines and lack of democratic policymaking, analysts have remarked that the G20 is a microcosm of the multitude of global malaise: persistent imbalances, the failure of democratic and collective action, and the lack of structural reforms.
At the core of the G20’s macro-policy agenda is an elite consensus that there is too much sovereign debt in the world and so governments have to reign in public budgets through fiscal austerity. As both Paul Krugman and Gerry Epstein have pointed out, this was the case in last year’s Seoul summit, which called for ‘fiscal consolidation programmes’ in developed countries despite massive levels of unemployment.
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This year’s Cannes Summit was marked by the much-awaited-for Eurozone bailout package and the drama that ensued after the Greek Prime Minister responded by calling for a popular referendum to decide on the Brussels-designed programme. The reason for the political panic in Greece is that Greek citizens have, for a while now, been up in arms in protest against the severe austerity sentence attached to these bailouts.
Greece’s dismal outlook reaffirms that austerity fixation, in both monetary and fiscal policy, remains the ideological foundation of both the EU and the EU-led IMF. Despite a 17% unemployment rate and plunging output in Greece, the condition of financial support is continuing fiscal austerity: cuts in public sector jobs, wages and pensions, spending in public goods (education and health are usually first in line), privatization, and so on. As FT commentator Samuel Brittan said, “The Greeks are being told by international institutions and creditor countries to squeeze, squeeze and squeeze again. I know how I would have voted in a Greek referendum on the package, were it to have gone ahead.”
However, according to the self-appointed G20 leaders, not all countries have to undergo fiscal belt-tightening. Last Friday’s communique clearly stated that “countries where public finances remain strong commit to let automatic stabilizers work and take discretionary measures to support domestic demand should economic conditions materially worsen.” Countries with large current account surpluses are instructed to “increase domestic demand” and “move towards more domestic-led growth.”
According to the G20 Action Plan for Jobs and Growth, the US, despite being the world’s largest debtor country, is to aim for “medium-term fiscal consolidation” while in the short-term is allowed to focus on a recovery package composed of “public investments, tax reforms, and targeted jobs measures.”
These statements reiterate the policy advice in a surprising IMF staff report to the G20 finance ministers meeting in Paris on October 14-15. The report was surprising because it marked a sharp turn from the IMF’s traditional austerity prescriptions by stating that, for advanced G20 economies that are not in high debt, “fiscal policy should navigate between the perils of undermining credibility and undercutting recovery.”
So, if a government has the luxury of fiscal space and sustainable debt, they are being urged, by the IMF, to focus on short-term stimulus and public spending for growth, while delaying austerity for the medium-term. This would, as the IMF says, “create space for providing further support for fledgling recovery.”
As for the debt-mired lot of Greece and Italy, countries that arguably need stimulus spending for recovery and growth the most urgently, the IMF and the G20, unsurprisingly, confine them to press ahead with “fiscal consolidation,” even as evidence of austerity undermining growth and increasing unemployment mounts. As the Italians and Greeks face an unnecessarily harsh penance of looming austerity in the coming weeks and months, they will have to question whether their commitment to the eurozone and its single currency still matters more to them than economic and social well-being, and control over their own future.