Some advice for Group of Seven leaders planning a trip to Japan in May: do a conference call instead.
No offense to the good people of Ise-Shima, an absolutely lovely place in Mie Prefecture. Officials there have yen signs in their eyes, and you know why. The leaders of the biggest industrialized nations are about to arrive with huge entourages, press contingents, motorcades and international buzz, filling hotel rooms, airline seats, eateries and local government coffers.
Judging from the pre-G-7 rhetoric, though, the rest of us can expect to get zero out of the summit. There will be hollow communiques, ambiguous pledges of cooperation and cringe-worthy photo ops in locally designed shirts. What there probably won’t be are concrete steps to shore up growth and or ensure that a 2008-like crisis can’t happen again.
The problem, of course, is the zero-sum-game mentality coursing through geopolitical circles and a bizarre level of denial that it even exists. Just ask the host of the May 26-27 Ise-Shima confab, Prime Minister Shinzo Abe. In a Wall Street Journal interview, Abe warned against “naked nationalism” at a time when it’s never been more important for G-7 powers to join hands to restore confidence in both capitalism and longtime security arrangements.
In his April 5 chat with the Journal’s Gerard Baker and Peter Landers, Abe didn’t mention Donald Trump as Exhibit A of the naked nationalism he fears. Nor did he refer specifically to France’s Marine Le Pen, Germany’s Allianz fur Deutschland party or Xi Jinping’s massive military buildup in China. Abe didn’t have to. The most cursory perusal of recent headlines suggests even Ian Bremmer was too conservative when he warned of the coming “G-zero world” in his 2012 book “Every Nation for Itself.”
As Bremmer tweeted Wednesday of Trump, who plausibly could be representing the United States at 2017 G-7 summits: “Can’t talk about policy if you don’t know anything about policy. Trump much more effective as a bully and blowhard.”
Here’s what Abe, Germany’s Angela Merkel, Britain’s David Cameron, France’s Francois Hollande, Italy’s Matteo Renzi and Canada’s Justin Trudeau will be thinking when U.S. President Barack Obama pledges to lower trade barriers, support global institutions and pursue responsible economic policies: “Great, Mr. President, but all bets are off come November if Americans elect a fiery isolationist with no use for international agreements — let alone knowledge of their existence.”
Abe’s nationalism warning deserves a broad hearing in the halls of power everywhere. Granted, he’s an imperfect messenger. Chinese and South Korean officials would argue Abe’s government often whips up domestic emotions to pad its support rates. His insistence that “we must avoid competitive devaluation” strikes many as the pot calling the kettle black considering the yen’s nosedive since 2012 and the Bank of Japan’s unprecedented monetary laxity. But Abe is right that “now is the time that the G-7 should work together and show leadership, and to clarify the vision and policies for the growth of the world economy.”
Take Germany, a government no doubt placing some aggrieved phone calls to Tokyo in recent weeks. The source of the ire: some supposedly off-the-record comments Abe made to Nobel laureate Paul Krugman last month in which the prime minister reportedly said “I will have to persuade (Germany) how they will come along with the policy for further fiscal mobilization.” Here, too, Merkel could ask Abe to look in the mirror, given his plans to raise the consumption tax and negligible progress in reforming the economy. Still, Abe seeking Krugman’s advice on how to cajole Merkel is telling.
While it probably won’t get a big hearing, the G-7 should indeed slap Europe for doing little to address its currency crisis. Tossing bailouts Greece’s way and begging the European Central Bank to ease further isn’t bold leadership, but a cop out. Without a clear fiscal union and fixing its weak links, the eurozone will remain a semi-permanent drag on global growth and source of market chaos.
In the U.S., passage of Obama’s Trans-Pacific Partnership is a casualty of the election cycle. As Japan goes through the motions of debating ratification, Republican front-runner Trump says he’d renegotiate the deal. Democrats Hillary Clinton and Bernie Sanders are down on the TPP in general. The Republican-led Congress, meanwhile, isn’t about to greenlight the infrastructure boom the U.S. needs to up its competitiveness, create new jobs and buoy global demand.
Structural impediments galore also stand in China’s way. As I’ve written before, it’s time for the G-7 to toss out a member to make room for Beijing (sorry Italy or Canada!). No international problem can be addressed on global imbalances, currencies, climate change, nuclear security or North Korea without Chinese input. How can G-7 powers assess growth outlooks without knowing Beijing’s plans for the yuan?
That goes too for prodding China to play a stakeholder role in our global system, not just a shareholder one. China wants more sway with global institutions but demurs when asked to accept greater responsibility. Its preference is to buy loyalty with financial assistance — hence its new Asian Infrastructure Investment Bank. The G-7 could make Ise-Shima worth the time and expense by inviting Xi or Premier Li Keqiang to the table.
It’s odd, actually, that the G-7 still meets at all. Back in 2012, when Abe and Xi were taking the reins and pundits like Bremmer predicted a G-zero world, the buzz was about the Group of 20. To the G-7 of old, it added China, India, South Africa Brazil, Turkey and others to diversify decision-making. Yet the G-20 is proving to be unwieldy, partly because most members fear crossing Beijing. Toothless, too. At its February meeting in Shanghai, G-20 members promised to use “all policy tools” to stabilize world growth and then left them in their toolboxes. And so, it’s the G-7 back to the rescue in a Japanese town near you.
“The G-7 countries face the challenge that world growth is slowing,” Abe told the Journal. “Furthermore, they face the fact that commodity prices have rapidly fallen, that there are large market fluctuations, that volatility has increased, and that productivity is falling across G-7 countries. We are seeing events that shake economic activity and people, as well as reveal naked nationalism.”
But as the world shakes, G-7 members seem as self-interested and far apart as they have in decades. As May comes and goes with little resolution to our shared problems, markets will be left with a nagging sense world leaders should get hip to video-conferencing already.
Based in Tokyo, William Pesek is executive editor of Barron’s Asia.
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