Collective action

The deliberations at the G-20 summit held in Cannes in France last week were overshadowed by the financial crisis in Greece and its consequences. The European leaders were preoccupied with salvaging the central bank’s bailout package for Greece, which was in danger of coming unstuck with the possibility of a referendum or the Greek government’s collapse.

So the activity on the sidelines took away some attention from the agenda of the summit. But the action on the Greek  front had an indirect bearing on the G-20 agenda also because a failure in Greece would have unwelcome consequences in the entire region and outside and the main players in the Greek drama also had important roles in the G-20 script. Considering this, the outcome of the summit was not all inconsequential, though the sixth such meeting of the leaders of the world’s largest economies delivered less than earlier meetings.

Some decisions that emerged from the summit will be useful in tackling situations like those in Greece or the Eurozone. A commitment was made to provide additional resources to the International Monetary Fund (IMF) so that it can play a more effective role by funding countries in distress.

This may be done through additional quotas, strengthening the IMF crisis fund or allocation of Special Drawing Rights to member countries. But an agreement to further strengthen the IMF to ‘fulfill its systemic responsibilities’ can be a positive. As a corollary, Italy agreed  to monitoring of its debt situation by the IMF and this may help to prevent Europe’s  third largest economy from going the way of Greece.

The willingness of all countries to submit to a collective scrutiny of their national fiscal policies is also a positive, as it can help to adopt a coordinated approach on important issues. This is sensitive because sovereignty in economic policy decisions is involved but an agreement in principle on the need for global co-ordination is a step forward.

The commitment to move towards a market-determined exchange system was also significant, especially with China agreeing to it. The communiqué has also mentioned steps to better manage capital flows and to ensure the health of the global banking system. Though there was no spectacular outcome, the summit’s decisions again underlined the role of the forum as a clearing house of ideas and actions.