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World
A Lack of Substance
G7 summit ends with a declaration but fails to agree on economic policy
By Bai Shi | NO. 23 JUNE 9, 2016

Leaders of Group 7 (G7) and another seven states invited by Japan pose for a group photo during an outreach meeting of the G7 summit in Ise-Shima, Japan, on May 27 (XINHUA)

The leaders of seven leading industrialized states (G7) made a declaration at the end of the summit held in Ise-Shima, Japan, on May 26 and 27. In the final statement, leaders of the United States, Canada, Britain, Italy, Germany, France and Japan pledged to enhance cooperation on promoting world economic growth, fighting against terrorism and coping with the migrant crisis.

However, analysts commented that the summit achieved few real outcomes. The communiqué reached by the leaders failed to bridge apparent divisions between G7 members on many issues.

Additionally, the summit's host and Japanese Prime Minister Shinzo Abe, the Japanese Prime Minister, attempted to steer the meeting's agenda toward regional affairs rather than focusing on the more pressing matter of global economic growth.

Economic divergence

Economic growth is usually the pre-eminent agenda item at G7 summits. Unsurprisingly, the leaders set global growth as an "urgent priority" and pledged to "collectively tackle" the major risks to this. However, they did not reach consensus on a cohesive economic strategy to pursue this goal, since they have different perceptions of the global economic situation.

Abe believes the contemporary economic climate strongly resembles the environment before the outbreak of the 2008 financial crisis. Thus, he warned the summit of the risks of the global economy lurching back into crisis, suggesting other leaders inject more money into their domestic economies to avert another recession. This was regarded as an attempt to save and promote "Abenomics" a set of economic policies based on structural reform, fiscal stimulus and monetary easing. German Chancellor Angela Merkel and British Prime Minister David Cameron, though, remained unconvinced, as they believe austerity is the right path to take in the aftermath of the last crisis.

In the body of the communiqué released on May 27, there is a lengthy and complex section concerning global growth. The leaders promised to commit "to strengthening...policy responses in a cooperative manner and to employing a more forceful and balanced policy mix, in order to swiftly achieve a strong, sustainable and balanced growth pattern."

They also called for international markets to be kept open in order to fight forms of protectionism and for countries to avoid competitive currency devaluation. The statement emphasized that each country will adopt its own flexible approach to fiscal stimulus.

To a certain extent, the coordination of economic policy should allow maneuver room for member states to set their own policies, though the stress on this point implies that the G7 did not reach an agreement on an optimum fiscal policy to boost global growth.

Prior to the summit, at the G7 Finance Ministers and Central Bank Governors Meeting that concluded in Japan's Sendai City on May 21, ministers failed to find common ground on major agenda items including foreign exchange rates and fiscal stimulus. Japan believed the recent volatility in exchange markets would be detrimental to the real economy, but U.S. Secretary of the Treasury Jacob Lew countered that there was no such disorder.

Concerns of their own

Aside from economic policy coordination, G7 members have their own concerns at present. European countries - France, Germany and Italy - are currently focused on Britain's referendum that will decide on June 23 whether the nation will leave or remain in the European Union (EU).

Cameron is busy campaigning for Britain to stay in the EU, though many in his political party wish to leave. A recent poll released by British newspaper The Daily Telegraph showed that 55 percent of respondents supported remaining in Europe, while 42 percent backed Brexit - a merge of the words Britain and exit in reference to Britain’s potential EU exit.

Meanwhile, France is facing its own set of problems. President Françoise Hollande's cabinet must take immediate measures to settle the protests against labor law reform. Domestic opposition has grown since the French Government issued new labor laws on February 18. Strikes and protests have led to economic and societal disorder, with the unrest increasing in April. Most oil refineries and gas stations have been unable to operate, making it almost impossible for cars to refuel. To compound matters, workers from 19 nuclear power plants have joined the strikes, creating a power shortage and the protests have also paralyzed railways and the subway system.

Though Merkel is often perceived as a sturdy pillar of the EU as well as its most powerful politician, she faces major challenges in solving the ongoing immigration crisis and preserving EU unity. Many EU member states, including Italy, have invested many resources and money to cope with the huge influx of refugees. Yet, Italy's debt is veering out of control, and unemployment remains extremely high.

Across the Atlantic, Justin Trudeau, who assumed the post of Canadian Prime Minister last November, has to handle domestic economic problems caused by currency devaluation, while U.S. President Barrack Obama has now attended his last G7 summit.

Obama's status as a president in the final two years of his second term and a Republican-controlled U.S. Congress have weakened his authority. The stall of the Transatlantic Trade and Investment Partnership (TTIP), which he views as a future cornerstone of U.S. trade policy, means that it is highly unlikely to be concluded by the end of his tenure in January 2017.

In Japan, "Abenomics" has not achieved the objectives of preventing deflation and generating income growth. Although Abe did not receive the international backing he desired at the summit, he still announced on June 1 the postponement for two-and-a-half years of the much-anticipated consumption tax increase due to be implemented in 2017. There are concerns that a consumption tax increase would discourage spending and therefore weaken consumer demand.

In April 2014, Abe's cabinet increased consumption tax from 5 to 8 percent, which prompted a recession in the Japanese economy from which it has yet to recover.

Japan's untold motive

Perhaps, Abe did not have high expectations for improving the coordination of world economic policies at this summit. Instead, he may have seen it as an opportunity to further enhance the U.S.-Japan military alliance. At the beginning, Abe tried to cover a broader range of topics including the East and South China Seas.

Yu Zhirong, research fellow with the Qingdao-based China Research Center of Maritime Development, told the Global Times that the joint declaration of the G7 summit expressed "concerns about the situation in the East and South China Seas." This was incited by Japan with the support of the United States, but it failed because European members are reluctant to become involved in disagreements with China, Yu explained.

The Chinese Foreign Ministry has expressed discontent over the declaration referring to the South China Sea issue. Ministry spokeswoman, Hua Chunying, told the press on May 27 that, "As a host of the G7 summit, Japan's hyping up of the South China Sea issue and regional tension does no good to the stability of this area, and is incompatible with the role played by the G7 as an economic governance platform for developed countries."

"China is strongly dissatisfied with what Japan and the G7 have done. It was hoped that G7 countries would take an unbiased and just position, honor their commitment to not taking sides on maritime disputes, stop making irresponsible remarks and do more things that contribute to regional peace and stability," Hua asserted.

Copyedited by Dominic James Madar

Comments to baishi@bjreview.com

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