The Greek debt crisis had cast its shadow on the sixth summit of the Group of Twenty (G20) even before it could begin its two-day deliberations at Cannes last Thursday. Predictably, therefore, the crisis in Greece, made worse by its prime minister George Papandreou’s flip-flop on a referendum on its bailout package, threatened to hijack the agenda for discussion that the leaders of the G20 countries had earlier prepared. Europe’s leaders were so preoccupied with the crisis in the euro zone that French President Nicolas Sarkozy, who hosted the summit, was mostly huddled with other European leaders to prevent the Greek problem from snowballing into a contagion. This perhaps forced him to even cancel his meeting with Indian Prime Minister Manmohan Singh on the sidelines of the summit. If Mr Sarkozy found time to meet Chinese President Hu Jintao for a private dinner, it only underlined the growing importance of China and the role it could play in helping Europe tackle its debt crisis.
Yet, the G20 Communique issued at the conclusion of the summit raises hope that the leaders of major industrialised and developing countries did not get bogged down by Greece. Instead, they put in place a series of new confidence-building measures to revive growth, create jobs, ensure financial stability and promote social inclusion. A key component of the new package of measures is the commitment by all G20 countries to agree to voluntary scrutiny of their national fiscal policies under the mutual assessment process or MAP. The new system is expected to ensure a more co-ordinated fiscal policy approach to be adopted by all member countries, though its implementation is likely to be difficult. Whether the United States will like to be guided by a co-ordinated approach on undertaking another round of quantitative easing is a moot point, just as the question of losing the sovereign right to decide its own fiscal policy can be tricky for many other countries. Nevertheless, the adoption of MAP at Cannes is significant since it was for the first time that major economies had volunteered to make a collective commitment to follow fiscal policies that would meet their national objectives even while ensuring that those policies were consistent with the goals of promoting global growth.
Equally significant were Italy’s pledge to submit itself to a monitoring of its debt situation by the International Monetary Fund (IMF) and a commitment by all G20 countries to provide additional resources to the IMF to help it play a meaningful role in tackling the euro-zone crisis. Critics are likely to question the seriousness of such a commitment since there is so far no clarity on the issue of funding the euro zone through the IMF if its own funds proved inadequate. But the Fund’s role is set to expand with an agreement to create a new six-month line of credit for countries that follow prudent fiscal policies. From India’s point of view, the Cannes summit saw the acceptance of two of its major demands. One, its proposal that the IMF should be tasked with the responsibility of tackling the fiscal mess in the euro zone has received general approval at the summit. Two, India had made a strong plea that the summit must send out a clear message to the tax havens that they stop abetting tax evasion and flow of illicit funds. The summit’s commitment to sign the multilateral convention on mutual administrative assistance in tax matters is a step in that direction.
