Something Old and Something New? The European Perspective at the Seoul G-20 Summit

Since the April 2009 G-20 gathering in London, Europeans have experienced a psychological roller coaster ride that began with the euphoria of President Barack Obama’s first visit to Europe and ended abruptly a year later with the political and economic onslaught of the European sovereign debt crisis. Although great attempts were made to put a positive spin on emerging policy differences between the United States and Europe during the June G-20 Summit in Toronto, there is now a stark divide over how best to achieve economic growth while simultaneously implementing budget austerity—fueled by the eclipse of Europe’s historical economic and political preeminence in the international monetary system and the rise of the emerging economies. However, as one-fourth of G-20 member states are European (United Kingdom, France, Germany, Italy, and the European Union), Europe has an ambitious vision to reform the international monetary system, diversify currency reserves, and drive global growth—although this vision will run counter to the United States’ preferred policy prescriptions.

Q1: What are the key issues on the upcoming G-20 agenda for Europe? What political dynamics are at play?

A1: As they attend the first non–G-7 chaired G-20 Summit, European G-20 leaders are reminded that they now must share the international economic stage with a new and diverse set of actors at a time of increased European economic fragility. Although German export-led economic growth has been impressive, it is not sustainable and is far from the European norm, as negative growth and increases in borrowing costs continue unabated in Europe’s periphery. On economic matters, the leading European voice is Germany and, under the watchful eye of Chancellor Angela Merkel, German policy has not always followed the preferred international economic script. Beginning with Germany’s insistence that distressed European economies embrace budget austerity this spring to its initial reluctance to embrace the Basel III capital-ratio requirements this summer, and most recently to its rejection of the U.S. idea of mandated limits in excessive current account imbalances (Germany’s current account surplus represents 6 percent of its GDP), Germany has been a difficult and demanding G-20 partner that will work diligently to ensure that nothing stands in the way of its mighty export-driven economy.

President Nicolas Sarkozy of France will feature prominently as his country assumes the chair of the G-20 following the Seoul meeting, in addition to assuming the G-8 chair in January. Sarkozy hopes to boost his rapidly deteriorating popularity and overcome daunting domestic difficulties with an active and ambitious chairmanship. Coming on the heels of his bilateral meeting with President Hu Jintao of China, Sarkozy is pressing full steam ahead for an overhaul of the international monetary system, putting an end to commodity speculation, diversifying currency reserves, specifically seeking to add the Chinese yuan to the basket of international reserve currencies known as the IMF’s Special Drawing Reserves (SDRs), and ensuring G-20 countries accept greater responsibility for global development.

Prime Minister David Cameron of Britain arrives in Seoul as the European poster child for the virtues of austerity after a grueling three weeks in which he announced a new national security strategy, a strategic defense and security review (which reduced defense spending by 8 percent), and a comprehensive spending review that inflicted deep budget cuts across the board (with the exception of foreign aid and the National Health Service). Cameron has also recently exhibited a considerable amount of personal diplomacy with a series of bilateral meetings with Chancellor Merkel and President Sarkozy to shore up the UK budget position within the European Union and on future defense cooperation, respectively, as a direct result of politically difficult decisions to reduce spending.

Not unlike last year’s G-8 Summit in L’Aquila, Prime Minister Silvio Berlosconi of Italy once again finds himself enveloped in a personal scandal of his own making. But unlike last summer, Berlosconi is in political peril as defections from within his own coalition and growing public dissatisfaction with his performance have considerably weakened his leadership and have caused some to question whether Berlosconi’s remarkable bravado can save him and his premiership this time around.

Finally, in a recent letter to the G-20 members, the European Union has asserted its position on important economic matters as it implores the G-20 to take action beyond the immediate economic crisis and prove it can address medium- and long-range issues, specifically on financial system regulation, on which the European Union has focused much of its efforts. The EU letter concludes by noting that, “A strong European voice will be necessary not only to defend our positions, but to shape the future agenda for global economic governance.” It appears likely that Europe, and specifically Germany, will play sufficient defense at the G-20 Summit to ensure its interests are protected. It is unclear whether Europe will assemble a sufficiently effective offense at Seoul to shape a new international economic order to its liking.

Heather A. Conley is a senior fellow and director of the Europe Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

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