G7 Summit, May 2016
Media Centre – G7 Ise Shima Summit. Once
together to attempt to reach a global
again the global economy tops the G7
economic policy consensus. Testing times
agenda with all the leaders concerned
lie ahead for the current world leaders with
about future economic prospects. It seems
spiralling debt, sluggish world growth,
little has changed since the establishment
deflationary pressure, weak demand and
of the first G7 meeting in 1975. Then, the
investment, commodity surpluses, tax
world economy faced an uncertain future
havens and currency war accusations all
following the break away from the fixed
threatening to destabilise the world
exchange rate mechanism and movement
economy. Despite over 40 years of global
to floating exchange rates, as well as the
summit meetings, global economic issues
1973 OPEC oil crisis, which heavily
still take centre stage.
restricted the supply of oil and drove up
the price on a phenomenal scale, thereby
straining
developed
countries
Coming together
whose
growth was largely dependent on foreign
Past summits have provided the stage for
oil. The supply shock almost quadrupled
global leaders to meet to discuss world
the price of oil from $2.90 a barrel prior to
economic problems along with other
the embargo to $11.65 a barrel post-
important issues such as global security.
embargo in January 1974. More recently,
These
the 1997 East Asian financial crisis and the
opportunity to create a united front on
2008 housing bubble have brought the G7
specific
summits
issues
have
and
provided
the
the
description,
G7 Summit, May 2016
‘steward of the world economy’, is
Possible disputes building up to the
probably how the G7 would like to be
summit
known. Over the years each communiqué
has stressed principles such as “think
Going into the summit, much talk
ahead” and “act together” in times of
surrounded the ‘three arrows’ of policy
adversity. Ultimately the G7 has provided
making in terms of fiscal, monetary and
the option for world powers to pool their
structural reform to tackle the highlighted
domestic economic policies and resources
issues on the agenda. But how much room
to push towards a common goal.
is there for manoeuvre on such policies?
Traditionally G7 members have promoted
Monetary policy puts interest rates at
the principle of free trade and liberalized
historic low levels, and huge quantitative
capital accounts. This is where measurable
easing
success
1999
traditional extent of its influence. This has
finance
likely driven growth since the financial
intended
crash and has attempted to provide banks
extension of the original, more exclusive
with the ability to offer borrowing and
concept saw the traditional great powers
investment opportunities once more. But
acknowledge the importance of many
how long will this extreme situation last?
developing nations. This indicates the
There is a growing expectation for interest
success and flexibility of the forum as well
rates to rise in the US for example, which
as
would perhaps signal an end.
can
be
seen.
establishment
of
the
ministers’
its
meetings
desire
to
as
The
G20
an
further
promote
programmes
go
beyond
the
globalisation, free market principles and
new trade opportunities. However, more
Fiscal policy was the centre of attention in
cynically, some may argue the G20
the build-up to, and throughout, the
represents one last throw of the dice from
summit but divides nations. The US and
the historic world powers to control the
Japan were pushing for a collective fiscal
threat to their long-established reign from
stimulus package from all G7 members to
the emerging nations.
simulate growth through boosting demand
G7 Summit, May 2016
and
encouraging
This
borrowing rate from government spending
approach was met with scepticism from
reduces private investment. Or that the
notably Germany but also the UK, as
suggested
highlighted by the Finance Ministers’
intended to partly finance the scheme will
meeting prior to the leaders’ summit. The
likely have a negative impact upon
verdict of the meeting led to an
consumption
acknowledgement from Japan that some
distributional effects. Furthermore, with
countries are unable to partake in their
demand and investment currently flagging,
proposed
this may in fact compound the issue.
fiscal
investment.
stimulus
thereby
rise
in
consumption
and
have
tax
negative
demonstrating a refusal from Germany to
conform to pressure for G7 countries to
Germany
has
placed
emphasis
on
collectively adopt a fiscal expansion
structural reforms as the main priority by
strategy.
'promoting education and innovation'. This
is a long-term solution and perhaps goes
President Abe’s commitment to fiscal
beyond the quick fixes often preferred by
stimulus could be limited by Japan’s
politicians
national debt level, which stand at around
electorates. However, success in this area
200% of GDP and is growing at a debt to
will not happen overnight and results are
GDP ratio of 6% per annum. This indicates
not
the problem is only getting worse. Times of
consensus surrounding structural reform
economic prosperity traditionally offer the
among the leaders, it seems to be an easy
opportunity to build an economic ‘war
answer for politicians to turn to.
seeking
guaranteed.
to
satisfy
Although
their
there
is
chest’ to be made available for use in times
of economic hardship. No such measures
Compounding this divide on future options
were taken in all of the G7 countries. Little
are accusations and tension mounting over
attention has been placed upon the
exchange rates. The US in particular has
Keynesian
been
argument
regarding
the
suspicious
of
over
the
Japanese
negatives of fiscal stimulus. Such policy can
government
devaluation
lead to ‘crowding out’ whereby the raised
manipulation. Devaluating currency levels
G7 Summit, May 2016
allows for exports to appear relatively
weapon to this end. ‘Abenomics deployed
cheaper on the world market. Therefore,
globally’ was a key message of Prime
cheaper exports intend to create an
Minister
increased aggregate demand within the
conference and a glance at the leaders’
economy. The Finance Ministers’ meeting
declaration confirms this through the
highlighted the intention to avoid this.
inclusion of fiscal elements. This gives
Nevertheless, it is probably true that a
Prime Minister Abe the opportunity to
global environment in which countries feel
proclaim Japan’s influence on the summit
their neighbours are trying to steal a march
and satisfy fickle domestic policy. Yet the
on them by devaluation is probably a world
clever wording of the document allows
that promotes suspicion, and one where
each leader to claim a victory. ‘Abenomics’
barriers to global trade are more likely to
emphasises fiscal expansion as the key tool
surface.
for
Abe’s
economic
post-summit
prosperity
but
press
the
declaration does not use wording to reflect
This year’s communiqué – something for
this explicitly. Instead fiscal ‘tools’ or
everyone
‘strategies flexibility’ are cited and do not
commit the G7 to stimulus or contraction.
Despite all the media hype ahead of the
This allows each leader to have the
summit suggesting that tensions were
autonomy to choose their own option of
running high regarding policy solutions to
action without being accused of going
the world’s economic problems, the final
against the alleged global ‘Abenomics’ now
communiqué is a conformist outcome. The
in place. The final declaration ultimately
document is undoubtedly carefully crafted
suits all leaders, notable Germany, who
to allow each leader’s personal agenda to
now has no need to conform to fiscal
be met in some way. The resulting leaders’
stimulus proposals that they so actively
speeches provided each one with the
rejected leading into the summit. This
opportunity to claim some heroics on the
outcome reiterates that of the Finance
world negotiating stage with the final
Ministers’ meeting, which highlighted that
communiqué acting as their perfect
G7 Summit, May 2016
each country’s set of circumstances must
through the much anticipated trade deals
be taken into account with regards to
of the Trans-Pacific Partnership (TTP),
economic action.
Trans-Atlantic
Trade
and
Investment
partnership (TTIP), Environmental Goods
The group again reiterates its commitment
Agreement
to using all ‘policy tools’ but this continual
Agreement (TFA), Information Technology
reiteration from summit to summit
Agreement (ITA) and Trade in Services
presents a lack of ideas of where to go
Agreement (TiSA), which will hopefully
next. World growth is continually revised
reduce unnecessary tariffs and promote
down by the IMF (currently down to 2.4%
the free trade ideal that has been a
per annum). Monetary policy is at the
historical
limits of its capabilities, fiscal policy is
communiqué states that the agreed
constrained by crippling government debt
implementation date for the EGA, TFA, ITA
run up by successive governments and
and TiSA is by the end of 2016 and this will
supply side options have distant goals and
hopefully hold ministers to account if these
uncertain effects. Developing countries
targets are not met. Shorter, more time
have fuelled world economic growth but
bound and specific aims are what are
with suspicions of a Chinese slowdown
needed rather than the continual lip
mounting the future is bleak. Developed
service so loved by world leaders.
(EGA),
success
Trade
of
the
Facilitation
G7.
The
countries’ traditional economic policies do
not have the influence they once had in the
larger, more complex global economy of
today with many more significant players.
John Casson is a Researcher in the
Department of Economics, University of
Some hope for the future
The small glimmer of hope is that leaders
have encouraged their ministers to push
Sheffield