ANALYSIS:There was surprise in Seoul that little Ireland could hijack a summit of such powerful states, writes CLIFFORD COONAN
THE G20 was supposed to be about rebalancing the world’s economy, but in the end, gnashing of teeth about whether Ireland will be able to pay its debts turned into the hottest story at the summit in the Korean capital.
There had been strong hopes the G20, which includes wealthy countries such as Germany and the US as well as increasingly powerful developing countries such as China, would help to create conditions for a lasting global economic recovery and come up with concrete measures to address imbalances between the economies.
These imbalances are heightened by the way many of the countries in the G20 are growing at markedly different rates.
But in the end a country which is not even a member of the G20 came to dominate discussions. There was a certain amount of amazement in Seoul that a country of just four million people could hijack a summit attended by the leaders of countries that account for 85 per cent of the global economy, but the Irish debt crisis is seen as symptomatic of a broader issue.
As with many of these events, the edges were where much of the action took place, with delegates circling each other, phones pressed to their ears as they worked out the nitty-gritty.
“At least Ireland recognises that it has a problem. Greece is still in denial, and it’s still in trouble months after being bailed out,” said one.
Colleagues from other countries winced and nodded sympathetically when they saw the “IRL” assignation on the summit pass hanging around my neck.
The reason for their concern was that earlier in the day ministers from the EU’s Big Five – Germany, Britain and France, plus Italy and Spain – all held talks about the sell-off of Irish debt, and issued a joint statement at the G20.
While British prime minister David Cameron joked that he was spending more time promoting England’s bid to host the World Cup in 2018 than dealing with G20 issues, the involvement of Britain was seen as crucial. It has not been involved in the European Financial Stability Fund, the €750 billion facility aimed at providing financial assistance to euro-zone states in difficulty, which was agreed by EU leaders in May and is due to expire in 2013. “Whatever the debate within the euro area about the future permanent crisis resolution mechanism and the potential for private-sector involvement in that mechanism, we are clear that this does not apply to any outstanding debt and any programme under current investment,” said Cameron.
German chancellor Angela Merkel weighed in with some tough words, stressing that any EU permanent crisis resolution mechanism to replace the present fund should not rely on taxpayers’ contributions alone.
“Let me put it simply: there may be a contradiction between the interests of the financial world and those of the political world. We cannot explain to our voters and citizens why taxpayers must finance certain risks, and not those who made a great deal of money taking those risks,” she said.
Ireland’s plight brought increased focus on one of the G20’s tasks – reforming the International Monetary Fund (IMF) and restoring legitimacy to the organisation, said Gregory Chin, an economist at the Canada-based Centre for International Governance Innovation. With the prospect of Ireland possibly calling on the IMF for a bailout at some point in the next few months looming ever larger, IMF reform took on fresh impetus.
“The ultimate issue is the health of Europe and whether it has the wherewithal to deal with potential problems,” said Mr Chin. “We need to show that there are mechanisms, that the safety net is there. And help has to be there without stigma attached,” he said.
The G20 leaders gave enthusiastic backing to sweeping reforms designed to give emerging economies such as China a bigger say in the IMF.
The reforms would enhance the organisation’s “legitimacy, credibility and effectiveness, making it an even stronger institution for promoting global financial stability and growth”.
The executive board of the IMF, formed after the second World War to remake the world financial system and prevent a 1930s-style Depression, agreed the changes – described as “historic” by managing director Dominique Strauss-Kahn – last week.
This is the fifth time the G20 has met since the onset of the financial crisis in 2008, and the backdrop to the summit was the fear that trade barriers and protectionism could escalate to the point that the global economy gets pushed back into recession.
However, there are no signs that growing familiarity with each other is making it easier for countries to come up with concrete findings.
The communique decided on vague “indicative guidelines” saying they would start working towards market-determined exchange rates.
Three days of tortuous negotiations about finding a wording for the final communique showed that there is still a lot of division among the countries and in the end the leaders opted to kick the big decisions into touch.
Perhaps we can expect more concrete decisions in Paris next year, although a pattern is emerging at the G20 meetings of change as something incremental, rather than sudden.
