G8...G20...Gee Whiz

Simon Johnson of Baseline Scenario has an interesting post discussing the overemphasis that is placed on the annual G8 (formerly G7) meetings as compared to the broader G20 (which includes developing countries, not just the 7 major Western economies with Russia and China added in...I know that makes 9, but I do not get to name the groups). While there are good political reasons for the G8 meetings to remain a regular event, I think he is right on the economics.

First, emerging markets have obviously risen in both respectable clout and ability to make trouble. China’s exchange rate policy is a leading example, but think also about Mexico, Brazil, or India. Having a global economic discussion (e.g., on climate change or aid to Africa) without these players fully at the table does not really make sense – particularly as the G20 now operates effectively at the heads of government level. And inviting these countries to a dinner or other event on the fringes of the main meeting just adds insult to injury.

Second, the Europeans are now organized into a loose political union and all of the major economies – except the UK – are in a currency union. What is the point of sitting down with Italy, Germany, France, and the UK separately? It is much more effective when they – and other Europeans – work out common positions and bring those to the table collectively. The European Union belongs to the G20 but not the G7.

Third, the idea that the US and its allies “lead” by any kind of economic policy example is plainly in disarray. The recent crisis focuses our attention, but we’ve seen two or three decades with irresponsible credit and throwing fiscal caution to the winds across these countries. These countries traditionally position themselves as “G7 models” worth emulating; this message needs to be toned down.