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UPDATED: July 5, 2010 NO. 27 JULY 8, 2010
From G8 to G20
The Toronto summit underlines the importance of the G20 as a new trendsetter for the world economy

ALL IN THE SAME BOAT: Nobuko Kan (center), the wife of Japanese Prime Minister Naoto Kan, signs her name after trying out canoe making with the wives of other G8 leaders at the hotel where they were staying in Toronto, Canada, on June 25 (IC)

Leaders of the Group of 20 (G20) major economies held their fourth summit from June 26-27 in Toronto, Canada, to set the future direction of the world economy.

For a long time, the Group of Eight (G8), consisting of France, Germany, Italy, Japan, the UK, the United States, Canada and Russia, oversaw the trend of the world economy. But all this was changed by the overwhelming financial crisis. Deeply caught in the crisis, G8 member countries were fully occupied dealing with domestic crises.

At this time, thriving developing countries became the saviors of the world economy with their huge foreign exchange reserves and consumer markets.

The G20, which is comprised of industrialized nations as well as emerging economies, gained prominence against this backdrop. The group held its first summit in Washington, D.C. in November 2008. The summit played a significant role in gathering consensus and dealing with the challenges of the financial crisis.

The speech made by Chinese President Hu Jintao, which advocated cooperation to overcome the crisis, was welcomed by other participating leaders and set a clear tone for the summit.

Since then, the G20's ability to solve world economic issues and the great expectations it shoulders have been firmly established.

At its second summit in London in April 2009 and its third in Pittsburgh five months later, it went on to become the "premier platform" for international economic cooperation. The G8, known as the G7 before Russia joined the group in 1997, has had to concede its 40-year dominance since the 1970s to the G20.

The Brookings Institution, a U.S. think tank, published a report titled "Recovery or Relapse: the Role of the G20 in the Global Economy" in June. The report pointed out countries in the world are now more dependent on each other than ever. In this context, it is inappropriate to rely only on the G8 to deal with increasingly globalized challenges. Therefore, the more practical G20 replacing a declining G8 is inevitable.

Of course, the G8 will not soon disappear from the historical stage. And it still dominates the G20 to a certain extent. But the G20 reflects the changes in international economic patterns and serves as a platform of peaceful dialogue between developing and developed countries.

Whether the G20 will play a key role in the establishment of a new international economic order depends on whether developed countries can face reality and shoulder their responsibilities. It also depends on the determination of developing countries, especially emerging economies and their coordination with developed countries.

Heated debates

At the Toronto summit, adjusting the world economy, reforming and optimizing the international monetary system and avoiding trade protectionism were all focuses of attention.

At the Pittsburgh summit last year, all countries were advocating economic stimulus plans while, at the most recent summit in Toronto, they turned sharply and fiercely debated whether to reduce government spending or maintain growth.

Deeply caught in debt crises recently, some European countries have carried out fiscal austerity plans, cut public spending and lowered fiscal deficits so as to rebuild market confidence. But the United States is afraid that European countries' excessive austerity plans would harm the global economy and thus impact the U.S. economy.

Recently, U.S. President Barack Obama wrote to the other G20 leaders, criticizing European countries' austerity policies and advocating policy support for strong economic growth. But Europe did not give a positive response.

Instead, on June 19, German Chancellor Angela Merkel said the EU would call on all of its member countries to withdraw immediately from the stimulus plan.

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