G20 impotent in face of Greek political turmoil

PUBLISHED : Friday, 04 November, 2011, 12:00am
UPDATED : Friday, 04 November, 2011, 12:00am


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How little times change. Three years ago, as leaders of the world's 20 biggest economies assembled in Washington at the height of the 2008 financial meltdown, Monitor advised readers not to get their hopes up.

Mounting expectations of a co-ordinated global policy response to end the crisis, the column said, were wildly misplaced.

'This optimism demonstrates how, even after the financial meltdown of the last couple of months, hope can still triumph over experience,' Monitor argued. 'In reality, the weekend's summit is unlikely to produce anything much beyond a general statement of intent - a sort of impotent Prince Charles-like wail that 'this really is awful; something must be done'.'

Monitor said there were sound reasons why nothing would emerge from the meeting. 'The most obvious one is that the single most important economic figure in the world ... will not be attending.'

Back then the crucial person was Barack Obama. Although he had won the US presidential election just days before, he was not due to take office for another two months. In his absence, the Group of 20 could achieve little.

This time the missing protagonist is the Greek prime minister.

Indeed, at the time of writing it was unclear whether Greece would even have a prime minister today, as the country at the centre of Europe's financial crisis showed all the signs of a descent into political chaos.

It wasn't meant to be like this. The idea was that the G20 heads of government gathered in Cannes today would lend their support to the deal struck last week by Europe's leaders to extend fresh funding to the indebted Greek government in return for new austerity measures.

The Europeans had even hoped to persuade China to pump some of its US$3.2 trillion of foreign reserves into the continent's enlarged bail-out fund.

But the Greek prime minster, George Papandreou, lobbed a hand grenade into the middle of the summit negotiations - and his own government - this week when he announced that Greece would hold a referendum to approve the new austerity programme.

Faced with an economy suffering rapid contraction and rising unemployment, beset with bitter political divisions in parliament, and confronted with strikers protesting in the streets of Athens against spending cuts and tax rises, Papandreou clearly felt he had no choice but to seek a popular mandate for his austerity plan.

As he made clear yesterday, in reality Greece's referendum would be 'a question of whether we want to remain in the euro zone'.

That, however, was altogether too strong a dose of reality for Europe's political class, who reacted with outrage that a question of such momentous national, regional and global importance should be decided by Greece's electorate, rather than by a closed-door meeting of senior international politicians.

In Hong Kong yesterday, Guy Verhofstadt, a former Belgian prime minister who leads the third largest bloc in the European Parliament, slammed Papandreou's call for a popular vote as 'irresponsible'.

'This has nothing to do with democracy,' he thundered.

Of course, what Verhofstadt was really worried about - along with many of Papandreou's own cabinet colleagues - was that the Greek people, given the choice between years of painful austerity or the chance to leave the euro, would opt in a flash to ditch the single currency. And that, they fear, could precipitate the break up of the entire euro project.

As a result, all eyes yesterday were focused on the political turmoil in Athens, rather than on the summit in Cannes, where the G20 programme was left in disarray with leaders looking impotent in the face of the deepening crisis.

Of course, this confused state of affairs is hardly likely to encourage the Chinese - or anyone else - to agree to buy debt issued by the euro zone's bailout fund.

But in truth there is little reason why they should. Despite Europe's pleading, the resources of the euro zone are more than sufficient to combat this crisis.

As a whole, the euro zone looks in relatively good financial health. Overall, it is running a budget deficit of 6.2 per cent of gross domestic product. That's higher than anyone would like, but low compared with the US at 8.6 per cent of GDP or the United Kingdom at 10.3 per cent last year. Total euro-zone debt is 85 per cent of GDP, lower than the US on 100 per cent, or Japan, where gross government debt stands at a monstrous 232 per cent of GDP.

Meanwhile, the euro zone's current account is in deficit by only 0.9 per cent of GDP, less than a third of the US level. As a result it makes little sense for Europe to seek financial aid from Beijing, especially as euro-zone GDP per capita is nine times as great as China's.

All this emphasises that Europe's real problems are not economic or financial but rather political. And there's not a thing the G20 can do about them.