27 Aug 2019

The G7 as a photo op?


An earlier version of this article by Daniel Gros appeared on El Confidencial.

The G7 summits were created a long time ago when these seven countries represented over one half of the global economy and most of its financial markets. It made sense for their leaders to meet from time to time to discuss the key economic issues at hand. The official communiques were usually bland and did not have any real impact. But the meetings themselves were useful because of the informal format, allowing the leaders from these seven countries to meet their counterparts.

The G7 economies no longer dominate the world, representing less than 30% of the global economy if measured in purchasing power terms. The US is still a key global economy, but the relative weight of the European countries and that of Japan has been much reduced over the last decades. Moreover, the G7 does not represent the future. Its members account for only about a quarter of the global growth that can be expected in the coming years.

In the past, one could at least count on the G7 nations having a similar economic and political outlook and the group used to represent the values of the West. No longer. Not only has the US withdrawn from the Paris agreement to tackle climate change, the leader of the biggest G7 economy thinks the US has lost out from the global economic and political order it itself shaped and appears hell-bent on dismantling the liberal global trading system.

The absence of US leadership comes at a time when the economic weight of the US within the G7 has actually reached a peak. In the past, the non-US participants together were much larger than the US and accounted at times for over 2/3rds of the GDP of the entire group. But their share, notably that of Japan and some European countries, has fallen, so that the US economy is now almost as large as that of the other 6 combined.

The most important global economic issue of today is the US trade war with China. However, while developments dominated the headlines over the weekend and most of the other G7 nations also have problems with China, trade barely figured on the agenda of the meetings. The summit did discuss the pressing global problem of the forest fires in Brazil, and agreed on a programme of aid. But Brazil, despite its economy now being larger in terms of purchasing power than that of four of the G7 members is not represented in the group and its government looks set to reject the offer.

In sum, this G7 summit has served to illustrate the disarray in the West and the absence from the grouping of significant global powers. In another point of discord, while his counterparts are keen to limit the club to liberal democracies, President Trump would like to see it welcoming back Russia, which is not a democracy and has little to contribute to global economic issues. This would only accelerate the decline of what was once a worthwhile exercise, but now has degenerated into a photo opportunity, which each participant uses mainly to enhance his/her political standing at home.