In the Eye of the Storm


The hopes of Mexico’s president Felipe Calderon to have the European crisis under control before he presides over the G20 Summit have been dashed. Although the immediate threat of an economic meltdown has subsided, the crisis is far from over. Continued uncertainty in Greece and growing crisis in Spain are the most recent problems that have worsened the situation in the euro zone, said the European Commission in its weekly report for the last week of May. As usual, it called for holding the line.

In fact, several storms loom on the horizon that will no doubt cloud the Summit that begins at the Pacific Ocean resort town of Los Cabos on June

The Economic Storm 

Although Greece narrowly evaded default, the two rounds of austerity measures have struck the poor and middle class while failing to pull the economy out of the danger zone. In fact, austerity has installed the country in a deep recession.

It’s beginning to look like Spain is not far behind. Former president Felipe Gonzalez declared it was “on the verge of a total emergency”, mainly due to crisis in the banking sector. The European Commission offered help from the rescue fund to recapitalize banks, but will require cutbacks on funding to autonomous regions and financial reforms-in short, austerity measures similar to those imposed on Greece by the triumvirate FMI-ECB-ECommission.

Besides causing extensive human suffering, the austerity measures are beginning to concern wealthy nations because of how they decrease global demand. The G8 continues to be the lead dog on the global economy, so it worth taking a close look at the May 19, 2012 G8 declaration.

The Camp David Declaration Reads Like a Washington Consensus Redux. As such, it bodes ill for any innovative solutions to come out of the G20. According to the G8, every issue facing the global economy has the same solution: more global trade and deregulation. No matter that the lack of regulation led to the financial crisis in the first place, or that irresponsible patterns of growth gave us global warming, the answer is still more of the same. The G8 barely mentions emissions controls and instead proposes national treatment for imports of environmental equipment, effectively stripping developing countries of the possibility to build up their own green industries. Food security? Use government funds and policies to leverage private investment. The same with infrastructure. There is also a recommitment to “fiscal responsibility” and to “refrain from protectionist measures”.

The debate dominated the G8 meeting at Camp David. The issue that captured the press about the G8 meeting however, was not the complete capitulation to orthodox economic policies–the press has forgotten the brief period in which regulation and a role for the state to protect the poor was actually presented as a viable alternative strategy to deal with the crisis. Instead it was the Growth vs. Austerity debate, in which “austerity” took a hit, at least rhetorically. Obama, worried about the impact on the US economy of a European recession, was held forth as the growth advocate pitted against Germany’s pro-austerity Merckel.

Nervousness about the continued crisis came out at the G8 in a volley of mutual accusations. The blame game is on, a dynamic that does little if not nothing to solve the problems at hand. The US, Japan and other countries are saying the European Union got itself into this mess, and it should get itself out. The EU immediately shot back saying that other countries must take more responsibility. Specifically, they demanded that China allow its currency to appreciate and that the US not raise taxes on the wealthy. In a letter from European Commission leader Jose Manuel Barroso and European Council President Herman Van Rompuy regarding the G20 agenda, the shift toward growth was clear

What’s surprising in this debate is the lack of human considerations. Although the politically popular employment concern is present, the discussion focuses more on how people will continue to consume, rather than how they will cover basic needs. Growth for whom? Shouldn’t the top priority be on making sure that the most vulnerable families are taken care of? Even the language in favor of increased government spending, is to keep consumerism up, not to create social safety nets. The talk about keeping workers working and productive—a must for any healthy economy—is focused on how to keep the financial system booming, not on production and family sustenance.

The Political Storm

The elections in Greece became a referendum on austerity. The response was a resounding NO from the people, reflected in defection from the two leading pro-austerity parties and a rise in votes for the anti-austerity left and, to a lesser degree, far right. The Radical Left Coalition (SYRIZA) garnered 16.2% of the vote, putting it in second place–a stone’s throw from the leading New Democracy Party. The two are in a dead heat for elections scheduled for June 17, just as the G20 meets to discuss its fate.

There’s a chance the nation could boot the bailout. The SYRIZA candidate Alexis Tsipras said “Voters on June 17th have one choice: bailout austerity or our program,” and described Syriza’s new policy as “one of dignity and hope for the people and the country”.

The election of Francois Hollande in France also shifted the balance away from the German-led belt-tightening model. Hollande’s Socialist Party will probably gain a majority in legislative elections later this month, strengthening his hand.

The vastly unpopular austerity measures have also fed the far right. The fascist Golden Dawn Party garnered 7% of the vote in the Greek elections, leading the European network Against Racism to note, “European citizens and residents need progressive alternatives to austerity measures. It should not be the vulnerable persons in society who pay the bill of the financial and sovereign debt crises generated by financial institutions and lack of oversight by political leaders and decision makers.”

Grassroots mobilizations against austerity and inequality in Greece, Spain, the United States and other G20 countries are heating up. The protests raise the question of whether business and banker demands formulated by the business group, the B20, and adopted by the G20 can be imposed for much longer without risking widespread social unrest. They are measures that require enormous sacrifices from those least able to give up more. There’s a social breaking point somewhere: not where societies fall apart, but rather where they come together–to reject saving the system at the cost of the society.

What Will the G20 Accomplish?

In this scenario, the G20’s ability to broker any kind of meaningful solution is highly doubtful. The austerity vs. growth/stimulus discussion will not be resolved, because Europe’s economic powerhouse, Germany, is holding fast. Furthermore, neither side has proffered real solutions, since both sides of the debate are avoiding a deeper analysis of the crisis that would make financiers responsible for their role in causing it and reform rules to prevent the kind of obscene profit-taking and speculation that places entire countries on the brink of ruin.

Mexico’s pet proposal to hyper-finance the IMF to the tune of $500 billion will also likely be a non-starter. Although some funding has been promised and the IMF greeted the proposal with glee, the U.S. and Canada have refused to cough up. With no progress on reforms that would give them greater voice, emerging economies like China, India, Brazil and others are not keen on the proposal.

Mark Weisbrot of the Center for Economic Policy Research points out that, “It’s ridiculous for a middle-income country with high poverty like Mexico to fund Europe.” He adds that the a richer IMF is unlikely to solve anything and could make the crisis worse while weakening democracy.

“IMF money for development will be used to continue to make a mess out of Europe. Developing countries should take a stand and say ‘no’ to Europe. The ECB could end the crisis this week by lowering interest rates on long-term bonds, but they see the crisis as an opportunity to force governments to do things people would never vote for,” Weisbrot notes.

Work on developing concrete measures on regulation of derivatives will not likely bear fruit in Los Cabos either. The working group on derivatives recently announced it would not be ready to present proposals at the June summit.

Expect no advances in climate change funding or prevention or mitigation efforts from the Mexico Summit. Funding continues to be left in the hands of the World Bank-run, which emphasizes market solutions and private sector involvement over government-led controls and mitigation programs. Market solutions are failing throughout the world, while at the same time generating huge conflicts and contradictions.

G20 Internal Dynamics: Who´s In and Who´s Out

Apart from all these considerations, accusations that the G20 has neither the moral nor the official authority to set itself up as the entity that decides these global questions still dog the process. These challenges to the G20 itself are likely to deepen as the debates and contradictions deepen, both within the group and among the large number of excluded nations. The outsiders are complaining that no one represents them, even as the G20 deigns to rule on issues that are literally life and death to their countries.

The organization of Caribbean nations, CARICOM, said it is concerned about “the slow process of reform of the multilateral institutions, the uneven results to date and the continued lack of representativeness and transparency of the G20”. Barbados Prime Minister Stuart affirmed, “There are worrying signs that we have moved from the rich man’s club of the G7 to the big man’s club of the G20”, whose members are “more united in telling non-G20 countries what they should do instead of prescribing for those within their own fold.”

While voicing concerns that small states have no place at the table, one commentator wrote politely but pessimistically about Mexico’s efforts to speak for them, “While the developing world should be grateful for his (Calderon’s) labors, the available evidence suggests that small states, especially, should not hold their collective breath for this G20 meeting to make a meaningful difference to them.”

Mexico can hardly claim to be the voice of developing countries after its whole-hog embrace of neoliberal tenets has led it into precisely the pitfalls that those countries hope to avoid.

The other problem is who’s in and who’s out on a sub-national level. While certain sectors sit at the table, others can’t get a foot in the door. There is a gross disparity between the influence granted the B20 and the L20. While the business sector will meet during the Summit and have a direct line to G20 decision-makers, the labor group is relegated to making usually ignored recommendations.

With so many challenges and contradictions, the storm fronts converging on Los Cabos promise anything but smooth sailing for Mexico’s G20 Summit.

Laura Carlsen is the director of the Americas Program.

Laura Carlsen is the director of the Americas Program in Mexico City and advisor to Just Associates (JASS) .

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