EU crisis looms over G20 talks

REUTERS

Activists wear masks of G20 leaders, from left, Brazils President Dilma Rousseff, South African President Jacob Zuma and German Chancellor Angela Merkel as they hold a protest for food security at the Monument to the Revolution in Mexico City. Picture: Reuters/Edgard Garrido

Jacob Zuma and the other leaders will be trying to prevent the growing European debt crisis from engulfing the world when they attend the G20 summit in Mexico.

In normal circumstances, SA would have a set of priorities rather different from those of the developed countries which predominate on the G20, as official briefing documents show.

Pretoria’s issues centre on development and greater representation for the developing world on global bodies of governance, such as the International Monetary Fund.

Those issues are likely to take a back seat at Los Cabos as world leaders grapple with Europe’s crisis. On Friday Greeks are expected to vote in a government that will reject the EU’s tough rescue package, perhaps precipitating Greece’s exit from the euro zone.

Mexico has been forced to adjust the summit programme to accommodate the fallout from Greece, as deputy minister Gerardo Rodriques explain-ed in an interview in Mexico City last week. In effect, Los Cabos will become, in large part, a mini-EU summit, giving the Europeans a platform to address their crisis and convince the world they are capable of building a strong enough firewall to prevent it spreading to infect everyone else.

An SA official close to the process acknowledges that this shift in the agenda, though unfortunate, is necessary so that the G20 can prevent the European crisis hurting SA.

“My fear is that meeting, as we are, a day after the Greek elections, we will not rise to the occasion,” he adds.

His remarks implicitly acknowledge the point that if the G20 and Europe fail to contain the fallout, all of SA’s other wishes for the G20 summit will become rather academic.

Nonetheless, they are real and, in a post-crisis world, their importance will re-emerge.

Are they likely to be fulfilled? The Mexicans acknowledge that the attention of the G20 leaders will be sharply focused on Europe, but that all the very extensive work which lesser officials have done over the last several months under Mexico’s guidance will not be wasted.

For one thing, SA will be pleased that the European crisis has placed a new G20 emphasis on growth, rather than the prevailing stress on austerity, as Rodriques pointed out.

This would include discussion on measures to stimulate growth, using EU financial resources like the European Investment Bank. Greater growth in Europe will mean reversing the downward trend of SA exports into the country’s biggest market.

SA would like the G20 to go further, though, by trying to achieve economic stabilisation through employment. But this, Rodriques suggests, is putting the cart before the horse.

“You have to have stability and growth to generate employment, not the other way round,” he says, adding that the Los Cabos Growth and Jobs Action Plan, which he hopes will be adopted this weekend, stresses instead “stabilising economies as a precondition for job generation”.

Nevertheless, he also notes that the plan includes investment in infrastructure, which requires many jobs, and a green growth initiative that should also help countries generate environmentallysustainable jobs.

Like other developing countries, SA has expressed concerns that “green growth” will be used as a code word for trade protectionism by developed countries, which might block imports of goods they deem to be eco-unfriendly.

But Roberto Marino, Mexico’s outreach ambassador to non-G20 countries, insists green growth will not be abused in this way.

And, though the SA government would probably not acknowledge it, the G20 summit should help its job creation efforts through a study that will be submitted to the summit on making labour markets more flexible, including “greater efficiency” in the hiring and firing of workers, and paying subsidies to employers to hire more youths, Marino said.

Another major priority for SA is getting greater voice for the developing world in global governance and increasing the resources of bodies like the IMF. On the first count, it would like a third chair on the IMF executive board to go to sub-Saharan Africa.

Rodriques said that was unlikely to be decided at Los Cabos, though it could still happen later.

SA should be pleased that, through G20 pressure, IMF members decided to boost its resources by $430 billion (R3.63 trillion) this year to help rescue countries in peril. Of that, $360bn has already been pledged by individual countries, and Rodriques hoped the rest would be pledged at Los Cabos.

SA also wants global financial regulations to be tightened up to prevent future crises, and Rodriques said the summit would tackle that issue, including through strengthening the Financial Stability Board.

SA’s wish list also includes the hope, which even SA officials know is forlorn, that the summit will revive the dormant Doha round of negotiations for a new global free trade deal that stresses development – including an end to rich world agricultural subsidies, which badly hurt farmers in the developing world.

Rodriques and other Mexican officials agree there will be little or no progress on Doha at Los Cabos, and suggest the G20 is now trying to detour around that issue.

Jose Antonio Torre, deputy economics minister, said it was “time to look at trade in a different way”. He said global manufacturing was increasingly being done through global supply chains, which incorporated components from many countries into one finished product, such as a car or computer.

This meant that countries were increasingly hurting themselves by keeping up trade barriers, as these were encouraging producers of supply-chain components to go elsewhere.

The G20 was undertaking a study measuring the involvement of different countries in these global supply chains in the hope that a greater understanding of their interdependence would persuade them to drop trade barriers.

The G20 is also putting more stress on improving trade facilitation – removing unintentional barriers to trade, such as inefficient customs controls.

Mexico has made greater food security a priority of its G20 presidency, and SA is fully behind that, hoping the G20 will focus more narrowly on policies and measures, including research and financial instruments that promote productivity and investment in developing countries, including instruments to mitigate the risk of food production.

Mexico’s agriculture minister, Francisco Mayorga, suggests these wishes will largely be satisfied, as Mexico will encourage G20 action to provide farmers with more and better information about global commodity markets so that they can use them to better advantage, as well as offering Mexico’s own experience of subsidising farmers’ training in engaging these markets.

Hammered

Addressing SA’s concern that the G20’s focus on putting out financial fires in Europe will divert it from its development agenda, Bruno Figueroa, the G20 pointman in Mexico’s development agency, observes that, if the G20 does not stop the rot in Europe, development will be hammered everywhere. That’s because the G20 commands 90 percent of the world’s wealth.

“But the other 10 percent is still important, and the G20 remains committed to development,” he said. He notes that the G20 action plan for development which emerged from the Seoul G20 summit of 2010 erected nine pillars of development. The French presidency last year decided to emphasise two of them – infrastructure and food security. Mexico had retained these and added green growth, as it believed in the importance of sustainability.

He said the leaders at Los Cabos would consider a plan to further implement the Cannes summit recommendations on infrastructure development in poor countries. This would include a report showing the global perception of the risks of investing in infrastructure in poorer countries had been exaggerated. This report should encourage investment, but also suggest other ways of lowering the real risks, he said.

The summit would also consider a report on best practices for improving mass public transport in developing countries.

l Fabricius was a guest of the Mexican government in Mexico last week for briefings on the G20 summit.