Lessons from the past for Canada’s G7 summit
G7 Summit

Lessons from the past for Canada’s G7 summit

The early G7 summits still offer lessons for today. The G7 summit was invented jointly by President Valery Giscard d’Estaing of France and Chancellor Helmut Schmidt of West Germany. Their aim was to produce an authoritative collective response to the economic crisis that produced the surge in oil prices of the early 1970s. After the first summit at Rambouillet in 1975, they kept the numbers small – just seven leaders plus the European Union, meeting once a year.

At first they focused on economic issues, such as the monetary system. The most ambitious summit, held in Bonn in 1978, produced a complex cross-issue deal between fiscal, trade and energy policies. But after US president Ronald Reagan arrived in the 1980s, he moved the summit away from economics to focus more on political issues.

In the 1990s, the summit got a new lease of life with the end of the Cold War. The G7 led western efforts to promote market economies and working democracies in Eastern Europe. The collapse of communism enabled the advance of globalisation, which also occupied the summit throughout the 1990s, and Russia was added to make the G8. The focus shifted again in the 2000s, to embrace development issues such as infectious diseases and the revival of Africa. But the G8 neglected problems nearer to home and was taken by surprise when the global financial crisis broke in 2008. The new G20 summit emerged and the G8 lost its pre-eminence. Russia was suspended after it annexed Crimea in 2014 and the summit became the G7 again.

In the past decade, the G7 has followed a strategy aimed at complementing the G20 without conflicting with it. Many problems needing treatment by the G20 initially arise in the G7 – tax evasion is a good example. The G7 is careful not to alienate the rest of the G20. But it can still pursue closer cooperation on issues such as climate change than can be achieved in the larger group.

In general, the summits only tackle intractable problems, because easier ones are settled at lower levels. The personal representatives of the leaders, called sherpas, narrow the area of dispute so that the heads can use their authority to bridge the gap and reach collective decisions. The agreement struck at each year’s summit is seen as the main achievement, yet often it is only the beginning. Summits do not always get the answer right the first time. Instead of bearing mature fruit, they may plant seeds that need more cultivation before the harvest appears. I regard this process of iteration as one of the most valuable aspects of summitry. I offer you three case studies of iteration, each linked to a summit chaired by Canada: debt relief for poor countries, financial reform and the revival of Africa.

Case study I: debt relief

Brian Mulroney chaired the summit at Toronto in 1988, Reagan’s last year. Back then, many poor countries were crippled by heavy debts owed to governments. The Jubilee campaign of charities and non-governmental organisations lobbied hard for relief on these debts and appealed to G7 leaders on humanitarian grounds. They won over Canada, the United Kingdom, France and Italy, but the United States, Germany and Japan resisted. So the ‘Toronto terms’ agreed by the G7 only gave relief on a third of the debts of poor countries that accepted International Monetary Fund (IMF) discipline. This was a start, but clearly not enough. Thereafter each G7 member in favour revived the subject whenever it chaired the summit. The UK involved Commonwealth finance ministers, who included many poor debtors. They called for the ‘Trinidad terms’, giving 50% relief, which G7 leaders endorsed at the 1991 London Summit. Italy secured the ‘Naples terms’ of two-thirds relief in 1994 and France pushed relief up to 80% of government debt at Lyon in 1996.

Poor countries also needed relief on their debts to the IMF and World Bank. So the 1996 Lyon Summit initiated the Heavily Indebted Poor Countries programme, based on another Commonwealth initiative. Debtors could get softer loans from the IMF and World Bank if they met stiff conditions over several years. But this process was too slow and the Commonwealth urged faster and deeper relief. The UK commended this to the 1998 Birmingham Summit. But although the United States was now in favour, Germany and Japan refused.

Germany would hold elections before it chaired the next year’s summit. The Jubilee campaigners lobbied all parties vigorously and their strategy paid off. The new government took a much more generous position, and Japan would not resist alone. The 1999 Cologne Summit agreed on a greatly improved regime: complete relief
on debt to governments and much easier terms on debt to the institutions.

A special trust fund was used to relieve World Bank debt, which needed another $1 billion in 2002. Congress at first refused the essential US share, but consented after that year’s Kananaskis Summit, where the rest of the G7 backed a Russian programme that Congress was promoting. Finally, at the 2005 Gleneagles Summit, the leaders endorsed a deal giving complete relief on debt to the IMF, World Bank and African Development Bank. Debt relief was settled at its eighth iteration.

Case study II: financial reform

Jean Chrétien wanted the 1995 Halifax Summit to focus on finance, to ensure the IMF and World Bank were fit to manage globalisation. Mexico’s economy had collapsed; the United States prepared a rescue scheme, but Congress refused it. So the US agreed with the IMF staff on a collective bailout, which was put to the IMF board as a fait accompli. The other G7 members agreed under protest and came to Halifax seeking to reform the IMF to prevent being bounced again. The summit agreed a solid package: better economic data, new emergency funds and closer cooperation among financial regulators.

But these reforms were not in effect before the contagious Asian crisis broke out, needing more costly bailouts. To regain control, the 1998 Birmingham Summit agreed a ‘new financial architecture’, but more crises followed in Brazil and Russia. In a third iteration, Cologne reinforced the architecture to cover surveillance of member economies, further IMF facilities and better financial supervision. A new institution emerged: the G20 finance ministers and central bank governors, combining the G7 with other ‘systemically important countries’ such as China and India.

Yet unwisely, G7 countries, especially the United States, behaved as if the new disciplines applied only to others, not to them. Private operators developed ever more risky financial instruments. Regulators allowed them, believing the market knew best. The 2008 Hokkaido Summit seemed blind to the imminent disaster, so that when it struck, the G8 was not trusted to formulate the international response. The responsibility passed to the new G20 summit, where iteration persisted until a complete package was agreed in 2009–10.

Case study III: the revival of Africa

Globalisation accelerated after the Cold War ended, but Africa was marginalised. Economic growth did not keep up with expanding populations. Aid programmes made little headway. African states blamed others for their troubles, including their former colonial rulers. All this changed thanks to four African presidents: Thabo Mbeki of South Africa, Olusegun Obasanjo of Nigeria, Abdelaziz Bouteflika of Algeria and Abdoulaye Wade of Senegal. In 2001, they won acceptance of the New Partnership for Africa’s Development (NEPAD), covering peace and security, political governance and a range of economic issues. In NEPAD, for the first time, African leaders accepted they were to blame for their own problems and took responsibility for their own recovery. They pledged to correct their failures and hold each other accountable.

Mbeki and the others realised that NEPAD needed external support. They got invited as guests to the 2001 Genoa Summit and asked the G8 to underwrite their initiative. The G8 leaders were impressed and at once drew up the Genoa Plan for Africa. They welcomed the NEPAD commitments and promised to help, provided the Africans took full ownership of their own revival. They chose African personal representatives to prepare detailed plans for the summit in 2002 – an example of built-in iteration.

Although Kananaskis was the first summit after 11 September 2001, Chrétien insisted that Africa be the lead subject. The G8 leaders adopted the Africa Action Plan to promote economic and political recovery, with commitments in all areas covered by NEPAD; they also pledged to double their aid for Africa. The four Africans attended the summit as participants, not just guests, and welcomed the G8 plan. This was a major initiative by both sides, but its initial reception was mixed. There was early progress in helping the new African Union create peacekeeping capacity. But some thought the aid offer too small; disbursement was very slow; and coordination was poor.

The UK decided iteration was needed and brought Africa back to Gleneagles in 2005. The special Commission for Africa drew up detailed recommendations. As well as complete debt relief, an ambitious target was set of doubling aid again for Africa by 2010. This new finance attracted more plentiful private investment and helped Africa to a sustained improvement in economic performance. The Organisation for Economic Co-operation and Development also attributed the steady progress to better political governance and improved economic policymaking. Average growth in Africa’s gross domestic product rose to 5% and was maintained over more than 10 years. Since 2015, weak commodity prices have reduced growth and deep political problems remain. Yet this was a success both for the summit and the Africans.

Prospects for charlevoix
History never repeats itself exactly, but it can offer clues to what may happen in the present. It appears difficult to handle US president Donald Trump at the summit, because he does not favour collective decision-making. The five themes chosen for Charlevoix – growth and trade, jobs for the future, gender equality, climate and oceans, and peace and security – offer plenty of scope for friction.

Yet earlier summits met comparable problems when Reagan first appeared. He had no interest in aligning his economic policies with his G7 partners. The first summit he attended achieved little, while his second, at Versailles in 1982, led to the worst transatlantic dispute of the entire Cold War. But the G7 learnt how to avoid such disasters and Reagan chaired a productive summit a year later that dealt mainly with politics. There were also problems when George W. Bush refused to act on climate change. In his first term, the summit had to use language on global warming that committed most leaders, but not all. But by 2005 Tony Blair induced Bush to join the G8 consensus.

The moral of these case studies is that the immediate outcome of the summit is not what matters most, but rather the long-term impact. Trump’s presence makes it hard to predict the extent of agreement at Charlevoix. Yet prime minister Justin Trudeau and his team can still plant fertile seeds in the G7 process, to bear rich fruit over time.