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L’Aquila to answer questions of G8 relevance

by Jun Hongo

It’s that time of year again when the richest nations in the world gather to discuss themes ranging from the slumping economy to global warming.

But impotence is not an option this year in L’Aquila, Italy, as leaders must bring the efforts against the economic crisis to a climax.

“Heads of state will probably claim that the first stage of the recovery is over and discuss measures to move on to the next phase,” Yoshiyasu Ono, an economics professor at Osaka University, told The Japan Times.

“But the world economy has not been stabilized in my view,” the expert said, adding that governments must remain focused on building strong foundations, such as creating jobs through “green” business.

Issues facing the summit participants have been transformed since the Group of Eight leaders gathered in Japan last year, when climate change and rising food prices were the topics dominating the meeting.

Prior to the leaders’ summit this year, Italian Prime Minister Silvio Berlusconi has said food security and carbon emissions will be some of the themes on the table. But talks on the “once-in-a-century” economic crisis will most likely be the core, as crunch time presses on global leaders.

On Sept. 15, two months after Prime Minister Yasuo Fukuda concluded the previous meeting in Toyako, Hokkaido, Lehman Brothers Holdings Inc. filed for Chapter 11. General Motors Corp., the world’s second-largest automaker, followed the same path in June.

The fall of the two giants is symbolic of the year that will see the global economy contract by 3.0 percent, according to a forecast by the World Bank.

The summit has come full circle since the 1975 inaugural gathering in Rambouillet, France, where the original members — the United States, the United Kingdom, France, Italy, West Germany and Japan — discussed measures to tackle an economy hit by an energy crisis.

The Rambouillet meeting, which included U.S. President Gerald Ford and Italian Prime Minister Aldo Moro as participants, correctly concluded more than three decades ago that a shift in energy dependency and preventing protectionism was the way to go.

However, some say fundamental changes in the global power base have expunged the effectiveness of the G8, making any decision without the involvement of rising powers such as China and India an inadequate resolution.

To play up their presence, the emerging BRICs countries — Brazil, Russia, India and China — held their first summit in Russia last month, meting out a preemptive request to the meeting in L’Aquila that they have greater representation in international financial institutions. They also called for a diversified global monetary system to prevent similar crises in the future.

The four powers, as well as countries including Mexico and South Africa, are scheduled to attend the L’Aquila meeting as outreach nations.

Others see a meeting of the Group of Two, or the U.S. and China, as the true engine of international discussions.

Such beliefs are backed by the fact that China is a key presence in the global community, especially as it has surpassed Japan as the top U.S. Treasury bond holder, with over $763 billion.

In addition to Beijing’s economic policies, its influence over issues such as climate change have become irrefutable. Without the involvement of the world’s top two carbon emitters — the U.S. and China — many will see a new deal on global warming as a letdown.

“The G8 used to be a place where global decisions on political and economic policies were made, but that is no longer the case. That has moved to the G20 and beyond,” Yoko Kitazawa, a columnist who headed the debt relief movement through the Japanese branch of Jubilee 2000, said.

“It’s possible that decisions between China and the U.S. will be regarded as the grounding of discussions in the near future,” Kitazawa said.

But a senior Foreign Ministry official, who asked to remain anonymous, said such views are not enough to undermine the G8 and its role.

While BRICs nations have a larger presence than ever and the G8 could be operating with additional members within years, the structure that calls for G8 countries to lead developing countries will remain the same, he said.

“BRICs countries are ultimately those that react” to what the G8 offers, the official added, noting that the BRICs summit last month did not produce specific proposals for global financial reform.

The official also said that contrary to its appearance, G20 meetings are essentially run by proposals by G8 members. The official said agreements reached in L’Aquila will be the grounding that will guide G20 members at the September meeting in Pittsburgh.

Foreign Ministry officials say economic statements made in L’Aquila will be in line with agreements at the G8 finance ministers’ gathering held last month in Lecce, Italy. Member states will stress that the world economy has begun showing positive signs, but that efforts to sustain the drift must persist.

Although there are uncertainties in global markets, measures to unwind excessive stimulus by governments will likely be included in the talks as well. The “exit strategy” from programs that helped the global economy recover will prevent governments from getting into heavy debt and allow the private sector to become the source of recovery.

The Lecce Framework, agreed upon at the finance ministers’ meeting to implement new regulations for transparent global financing, is also likely to be adopted in the final statement by the G8 leaders.

Columnist Kitazawa said Japan should play a role in suggesting the creation of an international institution that will promote transparency as well as strengthen supervision of global finances.

“The institution doesn’t necessarily have to be huge. But I believe it is Japan’s job to push for a system that prevents similar events from occurring,” Kitazawa said.

Meanwhile, Osaka University’s Ono suggested that Japan focus on promoting stimulus projects that help to stabilize the global economy in actuality.

Tokyo has so far abided by global calls to stimulate its economy, with Prime Minister Taro Aso launching a series of strategies, including a cash handout program worth ¥200 billion, tax cuts on the purchase of hybrid cars and cutting expressway tolls.

Japan’s Nikkei stock average briefly rose above the 10,000 mark last month, which the ruling party called the fruit of the government’s quick and appropriate action.

But Ono said that policies by Aso, such as the cash handout program, are not effective in stimulating Japan’s real GDP. The prime minister should refrain from making unfounded claims that Japan is on a path out of the recession.

“The key is to cut unemployment with projects that are of substance. What Japan should be doing is support employment through projects that produce direct benefits, similar to that of the green energy plans by U.S. President Barack Obama. It will contribute to not only the global warming problem but also Japan’s business recovery,” Ono said.

With regard to subjects not related to the economy, Japan, coming off its chairmanship of last year’s summit in Hokkaido, will be active in trying to sustain its leadership in the international community.

One such issue will be underscoring Japan’s midterm carbon emissions goal, which was revealed last month by Prime Minister Aso.

While some nations, most notably China, have expressed disappointment over Tokyo’s target of a 15 percent emissions reduction by 2020, government officials will give details of their self-proclaimed ambitious target to their counterparts.

For Japan, pushing Russia to resolve the bilateral territorial dispute and calling for a strong reaction from the G8 countries to North Korea’s nuclear test in May will also be major objectives in L’Aquila.

With President Obama mentioning nuclear nonproliferation as one of the elements of the leaders’ meeting, a joint denunciation of North Korea seems to be a lock.

But resolving the long-standing dispute with Russia will be another story.

Japan, which continues to demand that all of the Russian-held islands off Hokkaido be returned, is holding its breath for the scheduled meeting in Italy with Russian President Dmitry Medvedev.

The territorial dispute, which dates back to 1945, has seen no significant progress in decades, but Medvedev told Prime Minister Aso earlier this year that he would hold an independent meeting at the G8 to discuss ways to resolve the stalemate.

Since then, Japanese media have speculated on what the Russian president will propose, including the partial return of the islands. The government also sees the meeting as a key turning point, as proclaimed by Aso during a meeting with his Russian counterpart Vladimir Putin in May.

But Shigeki Hakamada, a professor of Russian studies at Aoyama Gakuin University, warns that the chance of a breakthrough is questionable.

While Japan and Russia have agreed to resolve the pending issue within this generation, Tokyo must be aware that Russia is calling for a compromise from Japan, Hakamada said. The expert speculated that Russia will not offer anything more substantive that it already has, which is to give back two of the islands.

Hakamada said Moscow will be careful not to harm its economic ties with Tokyo, but the furthest it will go is to propose a new bilateral framework to discuss the issue, at best.

“I believe there won’t be any considerable proposal from the Russian side,” Hakamada said.