Success and Failure of G7/8
Success and Failure of G7/8
According to the American business philosophy, executive decisions rarely generate a truly positive development on organizations, whether they are small or large in nature. An organization-wide consensus is preferable because it would generate commitment from all members of the organization. It is the Japanese who believe in executive decisions and therefore, decisions that are made exclusively by the executives have more positive impact on their organizations. Even so, in contrast with that reality, it is apparent that the Americans and Europeans that generate many executive gatherings in order to solve the problems of their countries.
Others however, have also stated that the reason of such executive gatherings is because the United States and European countries have come to realize that they cannot do much for the global economy by themselves. They need to coordinate their movements in order to produce effects that could actually generate changes in the global economy. Some of these executive gatherings are the G7 and G8. Considering their members, these international organizations have the potential of generating powerful shifts in the world’s economy.
Nevertheless, their roles in the latest international issues, particularly the global economic crisis, have been raising questions within the international community. In this paper, I am elaborating the original roles of the international organizations and display how they have perform those roles in relation to the latest economic and other international issues. Thus, due to the depth of these international issues, the third chapter will contain several analyses as examples of how the G7 and G8 performed their roles in some of these international issues.
2 Literature Review 2. 1 Roles of the Summit Meetings 2. 1. 1 G7 The Group of Seven (G7) is an annual gathering of the economic/finance ministers of 7 of the world’s greatest superpowers, which are: United States, Canada, France, Germany, Italia, Japan and United Kingdom. They meet at least once a year to discuss economic policies concerning their relationship as nations. Their work would then be supported by regular and functional meetings of officials. The Group of Seven is created in 1975 after the demise of the Bretton Woods system.
It was then considered one of the most influential institutions for international policy coordination and the governance of global economy. The principal role of the G7 is the management of major exchange rates. Some of the known interference of the G7 caused the notable depreciation of US dollar due to the Plaza Accord episode in 1985 and other episodes in 1990s. Nevertheless, there are recent debates regarding how effective G7 has been as an institution. It has been quite a while since the meetings are considered newsworthy by economists around the globe.
Questions have been raised regarding the institution’s effectiveness in managing the major exchange rate configurations, as well as dealing with changes in the future of a changing economies, where national economies have their own global systemic importance. 2. 1. 2 G8 The Group of Eight (G8) on the other hand, is the forum for government heads of eight superpower nations, which are: Canada, France, Germany, Italy, Japan, Russia and the United States. The concept of a executive forum of the world’s major economic powers have actually emerged since 1973, after the oil crisis and global recession.
It was in 1975 that the French president invited leaders of six industrious countries and formed the G6 which turned into G8 in 1994. The G8 was first considered an informal forum considering the lack of administrative structure. Nevertheless, as the importance of the forum developed, it was the considered as one of the most influential international forum as well. The G8 meetings are generally attended by heads of nations and ministers responsible for various issues that are being discussed.
The topic could vary from economic, health, social development, law enforcement, etc. In addition to the member countries, the meetings are sometimes attended by ministers of other countries, depending on the issues at hand. 2. 2 Challenges and Achievements of the Summit Meetings 2. 2. 1 G7 Successes and Future Challenges According to statistical evidence, the perceived successes of the G7 have been many. Mostly, the G7 have managed to move the G3 currency (US dollars, Yen and Euro) to the desired directions in the latest 12 months.
Others have argued however, that this move toward the desired direction should not only be perceived as a result of G7’s influence, but also partly influenced by the market forces that stabilize the currencies into more sustainable levels (Kennedy, 2008). Nevertheless, having the ability to deal with such market forces, G7 has been at least fairly effective in moving the G3 currencies into the desired directions. For instance, analytical evaluations on how the G7 works revealed that the forum has successfully point out major currency misalignment.
Thus, the G7 has helped facilitate and accelerate the convergence of those misaligned currencies into more sustainable levels. It is the reputation and credibility of the G7 and its ability to shape and communicate a consensus among the members which is considered important determinants when managing G3 currencies. Researches have also revealed that G7 has been successful in moving G3 currencies in the desired direction are more than 80% cases. Historic analysis also indicated that G7 has been quite effective in developing consensus among G3 policy-makers in the past.
Nevertheless, new challenges arrived and reduced G7’s ability to generate such consensus during the last decade. This is displayed by the significantly lower rate of consensus among G7 countries. This is displayed by the significantly lower consensus level in G7 meetings afterwards. It was discovered that G7 reputation and credibility have important position among all the important pre-conditions that are necessary. Furthermore, being explicit regarding G3 currencies and misalignments has also proven to be very beneficial for G7’s reputation.
Whenever G7 stopped providing guidance regarding G3 exchange rates, G7’s reputation would suffer. The current focus and challenge of the G7 is about the global economic governance and how new global player can share responsibility in developing international policies, like exchange rates. Most of the G7 focus is on developing exchange rate flexibility and appreciation of the currencies of emerging markets, like the Chinese RMB. G7 is aware that in managing such involvement, there will always be a trade-off between inclusiveness and effectiveness of policy coordination.
G7 is aware that the apparent challenge in several of the future years is how emerging markets and global institutions can share responsibilities in managing the global exchange rates more effectively with G7 (Fratzcher, 2008). 2. 2. 2 G8 Successes and Challenges The G8 forum on the other hand, reflected somewhat different evaluation results that the G7. First, the G8 forum addresses more issues than that of the G7, naturally creating more possibilities to fail for the G8 members. For instance, the G8 countries have promised on delivering various actions, some of which are not realized today.
Some of those stated promises are: I. G8 on AIDS, general health, TBC and Malaria G8 countries pledge that they would allocate a sum of funds in efforts of combating AIDS, TBC and Malaria all over the globe. Until today, the pledged sum is not entirely fulfilled yet. II. G8 on Terrorism Since 2002, the countries of G8 have pledged on organizing a global partnership in dealing with terrorism all over the globe. The global partnership is currently still facing many obstacles and challenges III. G8 on Climate Change The most difficult G8 promise to keep is regarding climate change.
This issue becomes more difficult to deal with particularly because the United States seems reluctant in doing its part in addressing the issue. Due to the vastness of each issue, we cannot evaluate each of them diligently therefore, in this chapter I will only focus on global partnership on terrorism. In order to deal with the greatest security threat since 9/11, which is terrorism, the Global Partnership sought to raise $20 billion over 10 years for cooperative projects to dismantle and secure biological, nuclear and chemical weapons and materials.
So far, evaluation on the G8 Global Partnership has been mixed. In positive side, G8 allies and friends have committed hundreds of millions of dollars to the destruction of chemical weapons and dismantlement of nuclear submarines. In reality however, the results lead towards more to the negative side. There is apparently still not enough funds pledged, and not enough things have been done to tackle the core issue of terrorism, which is to prevent dangerous materials to fall on the wrong hands. The identified challenges are:
• Negotiating Frameworks for Cooperation Because the global partnership program addresses sensitive issues, there is quite a challenge in dealing with the negotiation of legal frameworks. In addition to the donors that come into the organization, there is also the challenge of reviewing old donors. Some countries are easier to cooperate with compare to others. Russia for example, has been receiving assistance from more than 10 foreign governments and negotiating a legal framework to address terrorism is till a problem. • Disputes of Liabilities
Another challenge that slowing-down progress in the global partnership program is a long running dispute between the United States and Russia regarding terms of liability for nuclear-related projects. The bilateral dispute has been affecting the multilateral work on weapon dismantlement. Recent news however, indicated that they are about to reach a solution that would end the dispute in time for the next G8 summit meeting. • Procedures of Access Establishing access measures for foreign government personnel has apparently posed as an obstacle to the global partnership program too.
Due to their contributions, donor governments insist that recipient countries provide access to work sites that are related to the provided funds. Some recipient countries however, have more sensitive areas compare to others (Flournoy, 2005). 3 Discussions 3. 1 G7 Despite the positive evaluations revealed in the previous chapter, other articles indicated that the G7 has quite a poor reputation for some economists. Many believed that it has been a long time since those summit meetings have been newsworthy. Back in the 90’s, it has lost its credibility so severely that no one takes their word seriously.
The ministers have even been ridiculed by a photograph within an internet article, several years in the past. Until today, the ministers are still trying to prove that people do not have to turn back the clock to see G7 ministers perform serious efforts in fulfilling their roles again. The ministers are still a long way however, from winning the public trust again. Recently for example, G7 summit meetings indicated that the value of US dollar is important for the short-term development of the global economy, in order to address the crisis.
These announcements are expected to generate a market reaction and change the outlook on the exchange market. Small if any however, changes of market outlook have happened, displayed by the exchange rate behavior which still is pessimistic toward dollar (Nielsen, 2008). Recently the group has issued another statement that is expected to receive ‘weak’ reaction from the community at large. The finance ministers have pledged to take all the necessary steps to unfreeze credit and money markets, but no detail plan of actions is elaborated. 3. 2 G8 The G8 countries are also facing as much challenges as the G7.
In terms of AIDS, the group is receiving continuous pressure to deliver their promise to the global community. AIDS has orphaned 15 million children and has killed more than 300,000 children under the age of 15 in 2006 alone. Among the global deaths in 2006, 72% took place in Africa. At 2005 meeting the G8 leaders have committed to: • Cancel dents owned by the world’s poorest countries to the world bank • Enhance aid to poor countries, especially targeting Africa • Increase humanitarian aid and support peacekeeping activities • Supporting the creation of world trade deal that helps poor nations
• Ensure universal access to AIDS prevention So far, the successes have been: • More than 800,000 people have received anto-retrovial treatment • More than 18 million people received HIV testing and counseling • More than 6 million pregnant women received services that prevent contamination of AIDS to their babies • More than 4 million orphans and people living with AIDS received care. (‘G8: Keep you Promises’, 2007) 4 G7/8 Roles in the Global Economy As the organization composing leading industrialized nations, G7 has three goals and objectives as following:
? Becoming central economic that responsible of increasing sustainable economic growth of global economy. ? Maintains price stability and fiscal consolidation ? Conducting reformation of labor market in line with 1994 OECD Job Strategy (Staines, 2008) 4. 1 Credit Crunch and Liquidity Crisis 4. 1. 1 Background One current problem in global economy is ‘credit crunch’, which describe the sudden reduction of available loans provided by central banks and commercial banks. It also refers to the increasing costs of loans.
Meanwhile, liquidity crisis refers to the situation when businesses find difficulties in obtaining credits to maintain its profitable operations. If the condition lasts long time, it will force businesses to experience solvency problems (Rowbotham, 2008). 4. 1. 2 Impacts toward the Economy A prolonged credit crunch or liquidity crisis may generate a large number of bankruptcies and reduce the level of growth to minimum or even stagnant. An example of a price bubble that is so great, that it dragged down almost everyone if the society in its downward phase is the great depression of 1930.
4. 1. 3 Roles of G7/8 In order to cope with this issue, G7/8 also shows their concern to avoid the incidence of such great depression by taking the five-point plan of decisive action, which aims at unfreezing the credit markets. Furthermore, the five-point plan also aims at prevent financial institutions and major banks from failure and help them to obtain capital from private and public sources. It also intends to ensure the robustness of guarantee programs and national deposit insurance (BBC, 2008). 4. 2 Oil Prices 4. 2. 1 Background
The oil prices experiences undulating figure during 2008 that once reach the peak almost $150 per barrel in June 2008 and yesterday plummets into the lowest in 2008, $37. 87 per barrel. The condition also occurs during 2002-2005 period where the prices of crude oil were almost tripled. These conditions were troublesome considering oil becomes practically the most vital necessities of all business operations nowadays. Any increase in the oil price will also raise the production costs of most manufacturing industries (Feasta, 2005). 4. 2. 2 Impacts toward the Economy
The increased oil prices will contribute to the rising inflation rate, which further generate a difficult environment for businesses to maintain their operations. As we have seen in previous days, analysts predicted that as the prices of energy continue to rise, more bankruptcy filing is expected in the future. 4. 2. 3 Roles of G7/8 In order to prevent the incidence of oil price that may raise the series of corporate bankruptcies, G7 actively meet to stabilize the rising demands that may cause the prolonged difficulties by dealing with soaring energy costs (BBC, 2005). 5 Conclusion
The G7 and G8 summit meetings are efforts from superpower countries to coordinate themselves in dealing with the most pressing issues of the world today. They have specific roles of their own. When they were formed after the economic crisis, they were one of the most influential institutions in the world that was expected to coordinate the world’s government in facing current problems. It was only within those years however, have the ministers and government heads have displayed tremendous success in steering the direction of global policies regarding economy, warfare, health, security, social issues, etc.
Today, their credibility has fallen into a very weak state. It is expected however, that the recent pressures given to them by the global society as well as by the trembling global economic stability will have a positive effect toward getting these groups back to actual work and fulfilling their unfulfilled promises. Reference: Brooks, Rick. Simon, Ruth. (2007). Subprime Debacle Traps Even Very Credit-Worthy: As Housing Boomed, Industry Pushed Loans To a Broader Market. Wall Street Journal. Feasta. (2005).
South Africa and the Oil Price Crisis. Retrieved December 27, 2008 from www. feasta. org/documents/energy/October2005. htm Flournoy, Michele A. (2005). G8 Global Partnership: Successes and Shortcomings. Center for Strategic and International Studies. Retrieved December 26, 2008 from www. globalsecurity. org/wmd/library/congress/2005_h/050630-flournoy. pdf Fratzcher, Marcel. (2008). How Successful is the G7 in Managing Exchange rates. Retrieved December 26, 2008 fromwww. ecb. int/pub/pdf/scpwps/ecbwp952. pdf G8: Keep Your Promises on Global AIDS, Act Now. (2007). Retrieved December 26, 2008 from www. worldvision. org/resources. nsf/main/G8_paper_07. pdf/$file/G8_paper_ 07. pdf? open&lid=g8__2&lpos=main Kennedy, Simon. (2008).
G-7 Commit to ‘All Necessary Steps’ to Stem Meltdown. Retrieved December 26, 2008 from www. financialexpress. com/news/g7-commit-to-all-necessary-steps-to-stem- meltdown/372268 Morgenson, Gretchen. (2007). Crisis Looms in Market for Mortgages. The New York Times. Retrieved December 27, 2008 from www. nytimes. com/2007/03/11/business/11mortgage. html Nielsen, Bo. (2008). G8 Statement Fails to Convince Major Traders to Change Outlook. Retrieved December 2006 from http://www. bloomberg. com/apps/news? pid=20601087&sid=aj_btjkBGNes&refer=home Rowbotham, Michael. (2008). The Grip of Death, Jon Carpenter Publishing.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 8 October 2016
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