By the end of the 1990s, the challenges facing the seven biggest economies of the world had come to the fore as a hot-button issue for debate among think tanks, as the G7 struggled to find solutions to the important issues facing the world in the 21st century. Numerous reports were made and research was conducted by a number of international institutions that indicated the E7 group of Brazil, China, India, Mexico, Russia, South Korea and Turkey would stand out in the 21st century with regard to populace and gross domestic product (GPD) growth. Thus, the foreseeable challenges regarding the eradication of global poverty, climate change and global terrorism were emphasized and it was determined that the reaching of possible solutions to these problems was an impossibility, unless a platform were created where the seven countries could join together to search for remedies to the said global issues. Thus, this quest resulted in the formation of the G20 itself.
However, until the global financial crisis of 2008, G20 meetings were largely unsuccessful in securing a spot on top of the international agenda. Later, with the G20 summits hosted by Australia, Turkey and last year China, a number of crucial subjects have been broached including the institutionalization and future of small and medium enterprises (SMEs), employment (L20) and the rising role of women in the world economy (W20). These subjects have taken their place on the G20 agenda. In addition, the G20 is experiencing an important internal dilemma regarding crucial subjects such as the recovery of global economic growth and the revival of global trade and, above all, audit regulations for the global financial system. During the G20 summit in London in the spring of 2009, the requests of many G20 nations, led by Germany, to limit or entirely ban the short selling and leveraged transactions in the global financial system were refused by the U.S. and U.K.
It seems that these issues will once again be brought to the agenda at this weekend's G20 summit in Hamburg. It is obvious that, contrary to the policies of former U.S. President Barack Obama, who was partially convinced of the new regulations for a global financial system, the policies of President Donald Trump's administration will not include room for tightened restrictions. Trump has already taken steps toward lifting the contractual regulations taken on by the U.S. banking system in the Obama era since assuming office. As a matter of fact, there are differing opinions regarding not only the steps to be taken for the development of global trade but also regarding calls and steps to prevent protectionism. The protectionist calls and steps of France back in the day and those taken by the U.S. now contradict the efforts and proposed measures of the G20 to revive global trade. Now, G20 host Germany will try to unite the countries behind "anti-protectionist" discourse on the heels of Chinese President Xi Jinping's call at the Davos Forum.
Warnings from the IMF to G20
The International Monetary Fund (IMF) report, "Global Prospects and Policy Challenges", revealed ahead of the G20 Summit in Hamburg, emphasizes that protectionist policies despite sustained global growth rates as well as initiatives that disrupt global cooperation and rising financial frailties have created risk on a global scale. The IMF report, which points out that international cooperation is very important for the protection of the global financial system and for the fight against climate change, highlights that the establishment of a multi-sided, well-functioning system for international economic relations is one of the most important aspects of strong, sustainable balanced and inclusive growth. The warnings from the IMF in the report have been interpreted as criticism directed at Trump's "America First" protectionist policies.
The IMF report says that some factors contributing to global recovery have increased the frailties. The findings of the report, which underlines that China has sustained its strong growth with loans and fiscal expansion which have aggravated financial frailties, were shared based upon the fact that policies that support China's current growth rates are potentially unsustainable and linked to private and public spending and the income bubble. The report also indicated that the low interest rate setting has reduced profitability in the financial sector across many developed nations and has caused high corporate debt in rising-market economies.
The IMF report also included some advice for the Fed to continue its gradual interest rate increase in the context of data, advising the Fed to communicate its plans to downsize its balance sheet, for Japan and the European Central Banks to sustain their supportive monetary policies and for Germany to implement a more expansionary monetary policy.
This contradicts with the persistent position Germany has held up to this point. On the other hand, while the recommendation for rising market economies such Brazil, Mexico and India is to not interfere with the exchange rates, the G20 was called on to continue its show of support; especially towards low-income countries. Therefore, it remains to be seen if the G20 can overcome its internal conflicts.