The G-8 Ignores Economic Troubles
The group of wealthy industrial nations known as the G-8 met earlier this week, the thirty-ninth gathering since the group began meeting in the 1970s. As is so often the case with higher-level international meetings, this one has offered the world both reason for hope and reason for disappointment.
On the hopeful side was the willingness to at last address the Syrian mess, including the gumption (a trait usually absent from such gatherings) to confront Russia’s support of the Assad regime. Also encouraging was the stated intention of the assembled presidents and prime ministers to craft a major trade agreement between the United States and the European Union.
On the disappointing side was how the group all but ignored the world’s more immediate and urgent economic and financial concerns: for instance, Europe’s ongoing recession and fiscal crisis, the associated question of banking reform, the less-than-stellar economic and financial position of the United States, and concerns that Japanese prime minister Shinzo Abe’s economic program raises the prospect of a currency war.
As important as the Syrian crisis and long-term trade issues are, the G-8 has no basis for its neglect of such crucial matters. The news of the day certainly seems to demand attention. Europe’s economy has, if anything, become sicker over time and seems to sink deeper into recession with each new statistical release. Unemployment for the continent as a whole totals over 26.5 million—12.2 percent of the workforce—and, in harder-hit regions, it exceeds 20 percent. The recovery in North America is far from breaking any speed records, while U.S. fiscal policy remains a shambles, threatening global financial stability. Japan has pursued a questionable but nonetheless aggressive policy that the G-20, another group of the world’s major trading nations, has already criticized as a form of currency manipulation to promote exports at the expense of Tokyo’s trading partners. The G-8 negligence is that much more upsetting because Europe in particular at present seems to have lost the policy consensus it once had.
Nor can the G-8 claim the press of circumstances as an excuse for such negligence. The intention to ignore such matters was clear from the start. According to this meeting’s host, British prime minister David Cameron, the agenda was set originally to focus only on what he called the three Ts: trade, transparency and tax.
The first of these referred to the launch of negotiations for a U.S.-Europe trade deal. It may well promote growth and employment, as the press release claims. But since even its most ardent supporters expect will take more than two years to have effect, it hardly offers an answer for today’s urgent economic and financial strains.
The other two Ts conflate into an effort to crack down on tax avoidance and evasion. The EU claims that avoidance takes some one trillion euros a year out of government revenues, so such efforts could help close huge fiscal imbalances. But surely this is not enough to solve Europe’s ongoing financial problems and can only offer marginal relief to the Continent’s economic suffering. This agenda was a clear departure from that of last year’s G-8, which openly debated policies to alleviate economic and financial distress.
If anything, the guidance and insight that a G-8 debate could provide is more important now than it was a year ago. Then, Europe still held to a policy consensus, a dual emphasis on budget austerity and the kinds of structural reforms that could make these economies more flexible, growth-oriented and competitive. It was effectively a broad application of the German reforms of some years ago that had strengthened that economy and its finances.
But since the 2012 G-8, politics has muddled this commitment. Mixed election results in Italy have eroded Rome’s commitment to both the austerity and the structural reforms. Spain, Portugal, France and others have, to varying degrees, turned away from the policy consensus as well. Greek difficulties with privatizing government assets have also created doubts about future policy directions. Now, against such wavering across Europe, questions have arisen about whether the German elections this September will produce a result that will interfere with the country’s support for Europe.
This certainly is not the time for the G-8 to effectively pretend that these economic, financial and policy needs do not demand the guidance it could bring. Doubtless, Europe’s and the world’s economic and financial difficulties are too complex for even the most forceful and transparent G-8 debate to offer all or even most of the answers. But the absence of such a debate will surely only deepen those problems by creating still greater doubt and more policy drift. Strides on Syria, the prevention of tax evasion, and longer-term trade questions are clearly important and deserve attention. But the failure of this year’s G-8 to take up the day’s immediate economic and fiscal urgencies is a disappointment, perhaps even a dereliction of duty.
Milton Ezrati is senior economist and market strategist for Lord, Abbett & Co. and an affiliate of the Center for the Study of Human Capital and Economic Growth at the State University of New York at Buffalo. He writes frequently on economics and finance. His new book, Thirty Tomorrows, linking globalization to aging demographics, is forthcoming from Thomas Dunne Books of Saint Martin’s Press.