Old alliance gives West a chance

In many ways, it is something of a surprise that the G8 is still meeting. It was formed in the 1970s and its membership reflects that era. The eight nations that are meeting in Northern Ireland are the ones that comprised the advanced, industrialised economies 40 years ago — plus Russia, which was added to the group in the 1990s as a consolation prize for losing the Cold War.

Following the financial crisis of 2008, it seemed suddenly apparent that the G8 was no longer an adequate steering group for the world economy. Globalisation had transformed the world and a wider group had to be represented at the table.

The first summit of the G20 was convened in Washington in the aftermath of the collapse of Lehman Brothers in 2008. This larger group included the biggest emerging economies — such as China, India and Brazil. It was the G20 that, at a London summit in 2009, agreed on emergency measures to reflate the world economy.

At its next meeting in Pittsburgh, the assembled leaders let it be known that the old G8 would be folded into the bigger organisation. Gordon Brown, then Britain’s prime minister, said: “The old system of international economic cooperation is over. The new system, as of today, has begun.”

And yet, almost four years later, Brown’s successor, David Cameron, is hosting a G8 summit. So what explains the surprising resilience of a group that was dubbed an anachronism just a few years ago?

Institutional inertia doubtless plays a part. Formally scrapping the G8 would have involved offending some of the smaller members — such as Canada and Italy — who cherish their membership of this elite club. However, world leaders have crowded diaries and they try to avoid pointless meetings. So inertia alone is not a sufficient explanation.

The real reasons for the G8’s survival lie elsewhere. The first and most important is the rediscovery of the notion of “the West”. The group of countries that are meeting in the UK no longer include all of the world’s largest economies. But with the exception of Russia, they share high living standards and a commitment to liberal democracy.

They are a more coherent group than the G20 — which includes nations with very high levels of poverty, such as India, as well as autocracies, such as China and Saudi Arabia.

Faced with high unemployment in both Europe and the US — as well as the long stagnation of Japan — the G8 nations are looking for fresh ways to stimulate their economies.

As a result, there is talk of negotiating big, new regional trade agreements. The US and the European Union (EU) have begun talks on forming a transatlantic free-trade area. Meanwhile, the US is exploring the formation of a Trans-Pacific Partnership to free up trade and has persuaded Japan to take part in the talks.

‘West’s last chance’

These initiatives reflect the fact that the energy has gone out of the Doha round of trade talks, conducted under the auspices of the World Trade Organisation.

US and European politicians also feel that their electorates might be more receptive to new trade deals between rich nations than they are to opening their markets to countries with much lower wage levels.

The “rise of the rest”, in other words, the big emerging economies of Asia and Latin America, has also reminded western nations that they can no longer take their domination of the world’s economy for granted. That has also increased the incentives for the G8 nations to press ahead with an EU-US trade deal.

As one German diplomat explains: “Even the US is no longer large enough to shape global norms on its own. The EU cannot do it alone either. Together the EU and the US would still form a large enough trade bloc to shape the global trading and regulatory environment. But this situation will not last forever. This may be the West’s last chance and we should seize it.”

This kind of argument explains why trade questions are at the very top of the G8 agenda in Northern Ireland.

The fight against tax evasion also features prominently.

Until recently, this was an issue that divided G8 nations — with the French desperate to crack down on “fiscal paradises”, while the British and the Americans were warier. The US is now leading the fight against banking secrecy around the world. In a climate of austerity, the UK government is also taking a much less relaxed attitude to tax havens. Cameron has even promised to get tough with havens that are under British jurisdiction, such as the Cayman Islands.

The G20, like the G8, had made the fight against tax evasion a high priority.

However, in the aftermath of the financial crisis, the new organisation has disappointed some of the high hopes that were invested in it at the beginning.

It has become apparent that the G20’s biggest merit — the size and diversity of its membership — is also its biggest flaw. The larger group has proved too disparate to make much progress on issues that it singled out for attention — such as tax evasion and climate change.

By contrast, the G8 is a smaller and more coherent group. At this summit, it will strive to demonstrate that it is also both relevant and powerful.

– Financial Times