G-20 is set to replace Group of 8, U.S. says
Leaders of the world’s biggest economies gathering here for the Group of 20 summit have agreed that the organization will replace the Group of Eight as a permanent body for international economic cooperation, the White House announced late Thursday.
The change reflects the world’s shifting economic powers and a need for the U.S. and the traditional European powers to secure the cooperation of fast-growing economies such as China, India and Brazil to make progress on pressing issues.
The G-8 -- made up of the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia -- has been criticized as an elite, anachronistic body that couldn’t get much done because the main issues they faced often involved emerging nations that weren’t at the table
The U.S. also is pushing in Pittsburgh to give greater representation to those emerging countries at the International Monetary Fund and the World Bank.
The moves are part of an Obama administration effort to win the broad support here for a U.S. proposal calling for major economic structural changes designed to cure global imbalances.
The proposal, titled a “Framework for Sustainable and Balanced Growth,” calls in part for China and other countries to stimulate more spending by their own people to reduce their economies’ reliance on the U.S. consumer.
Among other expected developments, G-20 leaders are aiming for significant agreements today on regulating the global financial system as well as more modest progress on climate change.
U.S. Treasury Secretary Timothy F. Geithner said that compromises were within reach on a stricter regulatory framework for executive compensation and higher capital reserve requirements for financial institutions.
The new financial regulations would be designed to discourage excessive risk-taking and to reduce the chance of a future economic crisis as severe as the latest one.
Though Geithner offered few details, he suggested officials were in accord more than previously thought, saying that “a set of pretty detailed standards” would be revealed today with fairly rapid timetables for when they would take effect.
The U.S. and Europe had appeared to be at odds over both executive pay and capital requirements, with Germany and France in particular calling for more stringent compensation restrictions while complaining that the U.S. push for banks to hold more capital as a buffer against future losses would put European banks at a disadvantage.
Before Obama arrived here Thursday, nearly 2,000 protesters gathered in Pittsburgh’s Arsenal Park, some clashing with police when the crowd moved toward the distant convention center where the G-20 heads will meet.
The leaders are likely to take up a wide array of topics, although trade and the U.S. dollar did not appear to be on the agenda.
On the issue of climate change, which is even more fraught with domestic political considerations than regulatory reform, Obama is pushing for the G-20 nations to set a firm date to end government subsidies for fossil fuels, which produce the bulk of the heat-trapping gases scientists blame for global warming.
Environmental groups say such an agreement, with a binding target attached, would give much-needed momentum to negotiators working to come up with a climate treaty that could be adopted at a summit in Copenhagen in December.
The president also will press the group of governments to at least lay the groundwork for a so-called climate financing mechanism -- a pool of money, supplied all or in part by wealthier nations, that would be divvied among poorer nations to fund renewable energy technology and help them cope with the effects of warming temperatures and rising seas.
Richer and poorer countries appear far apart on how much money to pour into the climate finance pool and how the tab should be divided. Also, powerful oil lobbyists in the U.S. have ripped the proposed fossil-fuel subsidy ban; the American Petroleum Institute calls it “a giant tax hike.”
Although the world leaders face a world economy showing far more signs of recovery than many thought possible a few months ago when the G-20 heads met in London, unemployment remains high, complicating their efforts to make sure that the recovery sticks and that nothing like the financial crisis happens again.
And although the benefits of a free global economy are almost universally accepted, how the system should be managed remains a matter of dispute.
“We’re like living in an ‘earth village’ now, and different countries are also relying on each other more and more,” Zhang Yansheng, director of the Institute of Foreign Trade, a government think tank in Beijing, wrote in a recent article. “But nobody thought about who will be managing this village. No one is regulating globalization, and there’s no balance system established globally.”
Preliminary signs are that the heads of the G-20 nations, which account for 90% of the world’s economic activity, will pledge to keep existing stimulus programs going.
What is less certain is how other countries will react to Obama’s push to rebalance the global economy.
Shaken by the worst recession in a generation, Americans have sharply increased personal savings and cut back on the spending that made the U.S. a market for the production of many other countries.
Now, Obama administration officials are saying, other countries must recognize the new reality of the U.S. market and consume more themselves.
The ultimate goal is to reduce the trade surpluses in export-dominant countries such as China, Japan and big oil producers, while reducing deficits in the U.S.
Geithner said Thursday that there was “very broad support” for the proposal, but he acknowledged that the plan would be hard to implement.
“No country is going to cede sovereignty over fundamental choices about economic policy to the consensus of other countries or to an international agency,” he said.
Previous efforts to address global imbalances were unsuccessful.
U.S. officials have indicated they would like to see a review process undertaken, possibly by a group such as the IMF, that would look out for early signs of emerging imbalances. But it’s unclear how such a framework would be enforced.
Chinese analysts say Beijing understands the dangers of relying too heavily on exports and has sought to ramp up domestic spending by strengthening healthcare and other social safety nets and providing other incentives to consumers.
“I think this is exactly what China has been doing by focusing more on domestic consumption to improve the country’s trade composite,” said Liu Baocheng, a professor at the University of International Business and Economics in Beijing. “But whether China is really willing to enter specific commitments remains to be seen.”
Times staff writers David Pierson in Beijing and P.J. Huffstutter in Pittsburgh contributed to this report.