The war in Syria dominated media and diplomatic attention at the G20 in early September in St. Petersburg. At the actual summit, however, the agenda covered mainly macroeconomic and financial issues. Inaugurated in 1999 as a meeting of finance ministers from developed countries and emerging economies, the G20 has turned into a top-level summit coordinating the global response to the financial crisis after the collapse of Lehman Brothers in 2008. The G20 summits in Washington (2008), London and Pittsburgh (2009) re-financed the IMF ($500 billion), and established the Financial Stability Board to stabilise the banking system and derivatives markets. More difficult and less successful were the concerted efforts, from 2010 onwards, to couple fiscal austerity with structural adjustments between trade surplus countries (exporters such as China and Germany) and trade deficit countries (importers such as the US and Italy).
While the banking liquidity crisis and sovereign debt sustainability monopolised all previous summits, this G20 put an unprecedented emphasis on jobs, youth unemployment, and economic growth. At the insistence of the EU (among the developed countries the region that is struggling the most to return to growth) Labour Ministers were invited to the G20 negotiations for the first time. Such emphasis on youth unemployment, training, and the European Banking Union, puts additional pressure on the European Union to move towards more economic integration and to formulate common growth and employment policies. It should be noted, however, that what came out of the summit was only a political recommendation. In this respect, the EU and its member states did not announce any new specific commitment during the summit in St. Petersburg.
On the more “technical” aspects of market regulation, however, the G20 once again proved to be the most effective global forum. Concrete results have been achieved on “shadow banking” regulation, on anti-corruption information sharing mechanisms, and on the OECD plan to fight international tax avoidance and evasion (Base Erosion and Profit Shifting). The G20 also continues to play an important role in international trade. Until now it successfully contributed to halt protectionist spirals similar to the one that brought the world trade to a halt during the Great Depression in the 1930s. G20 countries agreed to extend the moratorium on new protectionist trade measures from 2014 to 2016 (the so-called “standstill clause”). This was possible despite opposition from Brazil and Latin America countries who consider themselves discriminated against by the more favourable trading terms already granted to African developing countries.
However, strong differences persist among G20 countries on the structural issues of macroeconomic and monetary policy. The Federal Reserve’s recent decision to taper its $85 billion per month bond buying programme initiated at the hype of the financial crisis caused turbulences in the currency market. Emerging economies, like India, have suffered spikes in the volatility of their currencies with damaging effects on their balance of payments. On this issue – like other structural imbalances – the G20 limited its conclusion to a recommendation that central banks’ decision be “carefully calibrated and clearly communicated.” Diplomatic code for disagreement.
Energy prices are another important structural issue over which the G20 was only able to say little. Energy prices make the newspaper front pages only occasionally, but they run across the whole international economic agenda. Energy market regulation and energy prices have come to the fore on a regular basis at G8 and G20 summits in connection with geopolitical crises (especially on gas) and benchmark oil price increases (the Brent market). Energy was at the centre of the 2006 G8 when the Russian-Ukrainian gas crisis hit Europe and oil prices reached $50 per barrel for the first time (a threshold now long forgotten, in 2012 the average price is stood at about $112 per barrel). Yet, international summits have had a limited impact on energy markets. At the onset of a crisis the consuming countries insist on the need for more market transparency and investment in energy efficiency, whilst putting pressure on exporters (Saudi Arabia in particular) to increase production. Even when such demands are met with modest increases, the impact on prices is limited and always short-term.
The exponential growth of a speculative financial market for “paper oil” (futures), however, has attracted the G20’s attention since 2008 when oil prices jumped to $147 per barrel, only crash $39 within a few months. Although there is no consensus on the actual impact of “speculation” on prices, the G20 and the European Union have since been trying to stabilise prices by increasing transparency and reducing the financialisation of commodity markets.
Energy prices differentials have a structural impact on international trade. This is also the case for the EU-USA Transatlantic Trade and Investment Partnership (TTIP) currently under negotiation. Low energy prices are a major competitive advantage for United States companies vis-à-vis their European competitors. There are also significant price differences within Europe: for example, Italy’s industrial electricity prices are among the highest in Europe. The price of energy is one of the engines of economic growth. Yet, international summits have a limited impact on the structure of the energy market. Differences in energy prices across Europe depend on specific commercial agreements between companies (especially in the case of natural gas) and on infrastructures, far more than they depend on international markets regulation. Also, a more stringent global regulatory framework for “Over The Counter” oil derivatives and greater transparency on professional price reporting (the “Price Reporting Agencies”) are important for the smooth functioning of markets and for its operators, but they will have a very limited impact on the final price.
At the core of energy markets there is an uncoordinated mix of market and political forces: a little of geopolitics and a lot of competing industrial strategies. Oil prices are kept high by the lack of a genuinely free and liquid physical market. We might be looking at interesting and unexpected developments in the near future, though. If the US’s forecasts on future shale oil production prove to be realistic, American oil export could transform and liberalise the market in an unprecedented way. As a side effect (but not irrelevant), this would make the Middle East far less important a supplier that it is today. These are, however, geopolitical and investment choices that go beyond the reach of the G20 and that of any international summit.
This post was originally published by the Aspen Institute, Italy
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