Berlin, Dec 30 (DPA) The Group of 20 (G20) is likely to face a test next year of its new-found role as the world’s top economic forum.
Apart from its planned makeover of the world financial system, the G20 major industrial powers and the leading emerging economies will also begin rolling back the big fiscal stimulus packages launched by governments to counter the recession.
At their final meeting of 2009 – in the US city of Pittsburgh in September – the G20 leaders agreed that the new, larger bloc should supersede the Group of Eight (G8) as the pre-eminent forum for dealing with global economic issues.
Besides marking a shift in the balance of power away from big states, this effectively transformed the G20 into a global economic council. Together, the G20 member states now represent about 85 percent of global economic activity.
With several key G20 states – such as the US, Japan and Germany – having already emerged from what has been the deepest recession in a generation, and growth picking up in nations such as India and China, the G20 has been under pressure to draw up exit strategies from the trillion-dollar emergency fiscal packages.
This is particularly the case as the packages of measures, which total about $2 trillion worldwide and include tax cuts and higher public spending, risks triggering a ballooning global public debt next year.
“The next challenge is the withdrawal of the financial stimulus measures in 2011,” said Frank Oland Hansen, senior economist with Danske Bank, “Here the risk is that the monetary and finance policy tightening will kill growth.”
G20 member states have been asked to submit their economic plans by January 2010 to help coordinate the end of the support schemes. At present, governments are expected to begin pulling back their anti-crisis fiscal programs by the middle of 2011.
Having responded to the onslaught of the economic crisis by slashing interest rates and pumping liquidity into the international economy, the world’s leading central banks are also starting to move towards exiting their emergency monetary support plans.
For the moment, the G20 stance is that the stimulus programs will not be drawn down until signs have emerged that the global recovery has taken a firm hold.
Indeed, a key agreement at the Pittsburgh summit was that the G20 would work together to ensure “fiscal, monetary, trade and structural policies are collectively consistent with more sustainable and balanced trajectories of growth.”
Success in laying out the groundwork for ending the anti-crisis plans and reforming the global financial system could help the G20 to further tighten its grip on forging global economic policy.
As a result, when the G20 member states gather in Canada in the middle of 2010, and South Korea in November, the bloc could have essentially eclipsed the other world power groupings.
Most significantly, the rise in importance of the G20 underscores the critical role played by the key emerging economies such as China, India and Brazil in helping big industrialised states such as the US and Europe counter the fallout from the recession.
Indeed, the world financial crisis has been a defining moment in the ascension of emerging economies onto the international economic stage.
If anything the economic firestorm showed how inadequate the G8 or the other smaller variations of the leading economies were in for shaping global economic policy.
That said, the G20 is still a relatively youthful organisation with the G20 leaders gathering in Washington in November 2008 for their first summit since the group was established in 1999.
Previously, G20 gatherings were for essentially for the bloc’s finance ministers and central bankers to meet. But since the historic November summit in Washington, the G20 leaders have met three times.
In addition to the world’s leading developed economies such as the US, Germany, Japan, Canada and France, the G20 includes key emerging economies such as Argentina, Brazil, India, Indonesia, Mexico, Russia and China.
