[Viewpoint] A pivotal summit

In 10 days, the G?20 London Summit will commence. World leaders will discuss how to resolve the most serious global economic crisis in 70 years and how to establish a new economic order. During the Great Depression in the 1930s, the London Economic Conference was held to overcome the global crisis, but it failed to reach an international consensus. As a result, the economic depression worsened, in the end resulting in the political catastrophe of the Second World War. Much is riding on the new global summit. Like the one in the 1930s, it surely will influence the fate of the globe.

At the core of the dilemma facing the world today is the fact that the global economy and global politics are developing at different speeds. As economic activities expand and integrate globally, there is no entity with political muscle to oversee the process and manage various problems that inevitably arise. Final authority to make all political decisions, or sovereignty, belongs to individual nations, and each nation prioritizes its own national interests. This makes international cooperation all the more challenging and important.

The inherent nature of national sovereignty explains why the positions of each country have been at times on a collision course in the run-up to the G?20 Summit. We find the United States emphasizing economic recovery, urging European nations to beef up fiscal spending. However, Germany and other European countries claim that they have already expanded government spending sufficiently, and say the meeting’s key theme should be the reform of the world’s financial order such as regulation of hedge funds and offshore banking.

The diverging positions of the United States and Europe have a long history. The United States has a point as it stresses revitalizing the global market. Columnists such as Martin Wolf of the Financial Times argue that the size of each country’s stimulus spending is very small compared to the scope of the global economic crisis we are going through.

On the other side, the United States and Britain certainly do not welcome tightened financial regulations that would weaken their status as financial powers. If the economy recovers speedily, the pressure on financial reform may subside, and they hope to minimize regulation on financial activities and maintain the existing global financial order centered in New York and London. Simply put, they are not willing to give up the hegemony of Anglo-Saxon capitalism, which emphasizes market freedom.

However, Germany and other European nations are in a different boat. At the time of the East Asian financial crisis in 1997, Germany insisted on regulating speculative capital that caused imbalance in the international financial order. On the other hand, the United States wanted to maintain the status quo as much as possible and did not cooperate actively. From the perspective of German-style capitalism, which stresses appropriate state intervention over market freedom, financial reform might be an obvious prescription. An interesting point of discussion is Japan’s position. When reform of the global financial system was discussed after the 1997 Asian financial crisis, Japan was for the reform along with Germany.

However, this time, Japan seems to support the United States’ idea of expanding government spending. Does Japan hope to maintain a U.S.-centered world order rather than European or Chinese leadership?

At the G?20 meeting, China’s position will get a lot of attention. China is careful in expressing its position, but it is calling for reform of international financial organizations such as the International Monetary Fund and the World Bank. It believes more power should be given to emerging economies and expects that the positions of IMF and World Bank managing directors will be held by figures from regions other than the United States and Europe.

One of the core issues at the G?20 Summit is to prevent runaway protectionism. If no visible agreement on this issue is reached at the summit, history will not be kind to those who attended. The Financial Times published an article in its March 11 issue that positively evaluated the Korean government’s aggressive effort on the issue.

If the Korean government focuses on anti-protectionism and displays leadership as the next G?20 chair, such an effort will not only coincide with Korea’s self interest as a trade-driven economy but also reinforce Korea’s status in global finance and diplomacy.

*The writer is a professor of international politics at Seoul National University. Translation by the JoongAng Daily staff.

by Yoon Young-kwan