Ideally, there should be no banding together by G7 – described euphemistically as the advanced industrialised democracies – within G20, which is a mixed group of advanced economies and emerging market economies. The Twenty should have a common purpose, however defined. The evolution of the informal formation of the two groups shows that they emerged out of different circumstances.
G7 A Relic, G20 The Future
The G7 was an ideological grouping harking back to the now dim Cold War past. When the Cold War ended with the collapse of communism and Russia was admitted to G7 and it became G8 between 1998 and 2014, it looked uncharacteristically cheerful. The exit of Russia after the occupation of Crimea – which is in many ways a prelude to the ongoing war in Ukraine – brought back the adversarial nature of G7.
But G20 was a different ball game. After the 1997 Asian crisis and the meltdown of the Thai baht, it seemed that there was need for consultation among all the major economies, advanced and emerging. And a decade later, the crumbling of the big American banks in 2008 made the huddle of the major players all the more compelling.
Then Indian prime minister Manmohan Singh with his academic-economist credentials became a mentor-figure in the early G20 leaders’ summits. It is the political contours of G7 and G20 that make them the curious phenomenon in the ever changing scenario of a multi-polar world. The superpowers are indeed dead, literally and metaphorically.
Russia is a crumpled power. America has become a wrinkled economy and its military might isn’t what it appeared to be in the past. But no new power has emerged. China is still the struggling giant on the edge. There are no dominant players. This should have made G7 and G20 more amenable formations than they have been.
G7's Power Play
The two meetings of G20 finance ministers and central bank governors (FMCBG) in Bengaluru in February and Washington last week under India’s G20 presidency showed up sharply the differences between G7 and G20. In Bengaluru, even as the differences cropped up over the issue of the war in Ukraine, and some of the members, including Russia and China, apart from the G7, differed on what should be said and not said, the G7 finance ministers held a small conclave of their own and issued a statement on the sidelines of FMCBG about their uncompromising position on Ukraine.
Nothing showed the diplomatic fissure than this indiscreet gesture. And the G7 finance ministers meet in Sapporo in Japan last week declared their own goals of increasing the renewable energy component of their economies as part of their climate agenda.
If the differences that surfaced at Bengaluru reflected the political divisions in the world at large, the second G20 FMCBG meeting at Washington last week showed that there was no consensus on the global economic agenda, which was not unexpected, but reiterated that the dividing lines were drawn along the G7 and the G20 minus G7 lines.
No Meeting Ground
The United States, the undeclared leader of G7, was not too inclined towards regulating cryptocurrencies despite the major blowup of FTX in the US, though India is much more optimistic about paving the crypto pathway as part of future financial transactions across borders. US Secretary of Treasury Janet Yellen has indicated that it would involve domestic changes in rules and America would not want to go there.
In a world dominated by cryptocurrency, regulated by central banks, the American dollar would lose its role of prima donna. India has a long way to go before it can create the majority opinion in the grouping to steer towards a global digital currency exchange.
And among the world’s political heads, Prime Minister Narendra Modi is all for embracing the new gateway. There are interesting sociological reasons why PM Modi can move forward on this frontier with greater vigour and sense of purpose compared to his counterparts in other countries, especially G7 leaders. China is the only other country that can push for cryptocurrency if it chooses to do so.
So, India as a leading G20-minus-G7 economy cannot really push the global agenda but in small measures. In contrast, Yellen was able to push the American viewpoint of a minimal global corporate tax of 15 per cent in G20 and beyond because America came up with the issue of rich Americans evading taxes at home and stashing away their wealth in secret Swiss bank accounts, an issue that is so familiar to the Indian ears.
G7 & G20: Twain Shan’t Meet
The Washington G20 FMCBG meeting saw the setting up of a committee under India’s NK Singh and US’s Lawrence Summers on the issue of multilateral development banks (MDBs), which is a roundabout way of discussing the restructuring of the World Bank, increasing its capital and making it a more effective instrument for dealing with alleviation of global poverty.
The question of poverty remains the theme song of the larger part of the global economy. Without going into a rhetorical debate on “Whither Capitalism”, it can be seen that crucial issues like climate change are tied up with that of poverty and hunger. India is not in a position to push the agenda forward because it cannot recapitalise the World Bank and China sits out as an unfriendly observer in the debate.
The US which is the largest shareholder in the bank refuses to budge. And debt restructuring in a distressed global economy falls into the same slot as the issue of global poverty, and the G7 inside G20 has other issues on mind. There is a clear incompatibility on how to go about dealing with crises in the global economy between G20 and G7. For a solution, the power tussle on the economic and political fronts between the two formations must ease.
Parsa Venkateshwar Rao Jr is a New Delhi-based journalist. Views are personal and do not represent the stand of this publication.
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