The G7, Anti-Globalism and the Governance of Globalization 9781138583627, 9780429506642

Table of contents :
Cover
Half Title
Title Page
Copyright Page
Contents
List of figures
List of tables
List of contributors
Acknowledgements
Abbreviations
1 The G7, anti-globalism and the governance of globalization: setting the scene
2 Advancing global openness: G7 governance of globalization
3 The master frames of globalization and the G7: beyond the left and right cleavage
4 The role of the EU in the G7 in times of populism, nationalism and anti-globalism
5 G7 governance of climate change: the search for effectiveness
6 Government debt, economic fundamentals and OTC derivatives in the G7
7 Growth and productivity in the G7: the impact of foreign capital composition and institutional quality
8 Out of the ashes? Reflecting on the future of global governance
Index

Citation preview

The G7, Anti-Globalism and the Governance of Globalization

The G7, a self-selected club of like-minded industrialized countries, looks at first glance ill-suited to address current anti-globalist concerns. Despite this, it has successfully confronted anti-globalization, populist and protectionist pressures by focussing on concerns surrounding the destruction of the natural environment, immigration, transnational crime, drugs, disease and terrorism, thus demonstrating the social and ecological advantages that globalization brings. Exploring how the world’s oldest informal summit institution continues to respond to rising anti-globalisation, populism and protectionism, this book investigates the contribution the G7 makes to global governance through its actions and accountability of its members. The expert contributors analyse from different perspectives the issues that have contributed to the rise of populism and protectionism, and how well the G7 has responded to them. Each contribution identifies avenues that might allow renewing and strengthening the role of the G7 in times of global change, with a view of strengthening its legitimacy and effectiveness. It will be of interest to policy makers, diplomats, scholars of international relations, international political economy, diplomacy, summitry and global governance. The issues discussed will also be particularly relevant to those working for civil society and non-governmental organizations seeking to participate in governance forums or to influence those who do. Chiara Oldani is Professor of Monetary Economics and Economic Policy at the University of Viterbo ‘La Tuscia’ and Director of the G7/G8 Research Group in Italy. Jan Wouters is Full Professor of International Law and International ­Organizations at KU Leuven, where he is also Jean Monnet Chair ad personam EU and Global Governance, and founding Director of the Institute ­ euven Centre for Global Governance for International Law and of the L Studies.

Global Governance Series Editor: John J. Kirton, University of Toronto, Canada

Global governance is growing rapidly to meet the compounding challenges of a globalized 21st-century world. Many issues once dealt with largely at the local, national or regional level are now going global, in the economic, social and political security domains. In response, new and renewed intergovernmental institutions are arising and adapting, multilevel governance is expanding and sub-national actors are playing a greater role, creating complex combinations and private partnerships to this end. This series focuses on the new dynamics of global governance in the 21st century by • • •

•

Addressing the changes in the structure, operation and impact of individual intergovernmental institutions, above all their innovative responses to the growing global challenges they confront. Exploring how they affect, are affected by and relate to non-state actors of global relevance and reach. Examining the processes of cooperation, competition and convergence among international institutions and the many global governance gaps where global challenges such as terrorism, transnational crime and energy do not confront powerful international institutions devoted to their control. Dealing with how global institutions govern the links among key issues such as climate change and health.

In all cases, it focuses on the central questions of how global governance institutions and processes generate the effective, legitimate, accountable results required to govern today’s interconnected, complex, uncertain and crisis-ridden world. BRICS and Global Governance John Kirton and Marina Larionova The G7, Anti-Globalism and the Governance of Globalization Edited by Chiara Oldani and Jan Wouters For more information about this series, please visit: https://www.routledge. com/Global-Governance/book-series/ASHSER1420

The G7, Anti-Globalism and the Governance of Globalization

Edited by Chiara Oldani and Jan Wouters

First published 2019 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2019 selection and editorial matter, Chiara Oldani and Jan Wouters; individual chapters, the contributors The right of Chiara Oldani and Jan Wouters to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Oldani, Chiara, editor. | Wouters, Jan, 1964– editor. Title: The G7, anti-globalism and the governance of globalization / edited by Chiara Oldani and Jan Wouters. Other titles: Group of Seven, anti-globalism and the governance of globalization. Description: Abingdon, Oxon; New York, NY: Routledge, 2019. | Series: Global governance | Includes bibliographical references and index. Identifiers: LCCN 2018024582 | ISBN 9781138583627 (hardback) | ISBN 9780429506642 (e-book) Subjects: LCSH: Group of Seven (Organization) | International economic relations. | Economic policy—International cooperation. | Anti-globalization movement. | Globalization—Political aspects. Classification: LCC HF1359 .G24 2019 | DDC 337—dc23 LC record available at https://lccn.loc.gov/2018024582 ISBN: 9781138583627 (hbk) ISBN: 9780429506642 (ebk) Typeset in Times New Roman by codeMantra

Contents

List of figures List of tables List of contributors Acknowledgements Abbreviations 1 The G7, anti-globalism and the governance of globalization: setting the scene

vii viii ix xiii xiv

1

C hiara Oldani , Jan Wouters and A lex A ndrione - Moylan

2 Advancing global openness: G7 governance of globalization

22

John J. K irton

3 The master frames of globalization and the G7: beyond the left and right cleavage

45

R affaele M archetti

4 The role of the EU in the G7 in times of populism, nationalism and anti-globalism

68

Jan Wouters and S ven Van K erckhoven

5 G7 governance of climate change: the search for effectiveness

90

John J. K irton , E lla Kokotsis and Brittaney  Warren

6 Government debt, economic fundamentals and OTC derivatives in the G7 C hiara Oldani

127

vi Contents 7 Growth and productivity in the G7: the impact of foreign capital composition and institutional quality

148

Tatiana C esaroni and Roberta D e Santis

8 Out of the ashes? Reflecting on the future of global governance

169

A lex A ndrione - Moylan , Jan Wouters and  C hiara   Oldani

Index

179

Figures

6.1 6.2 6.3 6.4 6.5 6.6 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 7.10 7.11

G7 gross public debt as % of GDP (yearly) 128 G7 GDP growth rates (%, yearly, constant prices) 130 G7 Labour productivity and unemployment rate 131 G7 net public debt as % of GDP (yearly) 132 Gross market value of OTC derivatives by non-financial customers 135 Sentix Index (as of November, 2017) 139 G7 GDP per capita (levels, 1996=100) 151 G7 average real GDP growth rates (%) 151 G7 average multifactor productivity 152 Net foreign assets components in the G7 group, in the EA and out of the EA (extra EA) 153 G7 net foreign assets components (PEI, FDI and PDI) 155 G7 institutional quality composite indicator 158 Institutional quality WGI dimensions (France, Germany and Italy) 158 Institutional quality WGI dimensions (Canada, Japan, the UK and the U.S.) 159 Gross PEI, PDI and FDI versus GDP growth and versus MFP 163 Net PEI, PDI and FDI versus GDP growth and versus MFP 164 Gross and net PEI, PDI and FDI versus WGI 165

Tables

2.1 G8 overall performance, 1975–2017 27 2.2 G7/8 summit demonstrators, 1998–2017 36 3.1 Main characteristics of global master frame 50 4.1 EU and overall compliance with G7 decisions (selected issues) 75 5.1 G7/8 climate change commitments by subject 102 5.2 G7/8 compliance on climate change 106 5.3 G7/8 compliance catalysts 112 5.4 G7/8 Summit-based causes 118 5.5 G7/8 official bodies 120 5.6 G7/8 multi-year compliance averages 123 6.1 G7 Government debt by creditors 2016 133 6.2 Payments (+) and inflows (−) related to OTC derivative contracts (€ million) 136 6.3 Payments (+) and inflows (−) related to renegotiated OTC derivative contracts (with negative mark to market) (€ million) 136 6.4 Italian government derivatives underwritten 2006–2015 (€ billion) 136 6.5 Ordinary least squares France 141 6.6 Ordinary least squares Germany 142 6.7 Ordinary least squares Italy 143 6.8 Germany, France and Italy CDS, debt and yield 143 6.9 Germany, France and Italy CDS determinants 144 7.1 Summary statistics for G7 countries – 1996–2015 (obs140) 160 7.2 Correlation indexes for G7 group – 1996–2007 (stocks/GDP) 161 7.3 GDP growth, productivity and foreign capital components: preliminary associations (static panel data, fixed-effects regressions) 162

Contributors

Alex Andrione-Moylan is a junior research associate at the Leuven Centre for Global Governance Studies (KU Leuven) and is Secretary of the 2018 KU Leuven Interfaculty Working Group ‘Futuring Europe’. He obtained a BA in international relations from the University of Turin, an MA in European studies and an MSc in European politics and policies from the University of Leuven (KU Leuven). His research interests focus on populism and contestation in the European Union and global governance, and he has co-authored publications on the impact of populism, as well as the role of women, in European Political Parties. Tatiana Cesaroni is an economist at the Economics, Statistics and Research Department of the Bank of Italy. She previously worked at the Italian Ministry of Economy and Finance and the Institute for Studies and Economic Analysis (ISAE). She teaches macroeconomics and economic policy at LUISS Guido Carli University. The key topics of her research are business cycle measurement and analysis, European integration and macroeconomic forecasting. The most recent publications are ‘The predictive content of business survey indicators: evidence from SIGE’ (with S. Iezzi) on the Journal of Business Cycle Research, ‘Current account “core periphery dualism” in the EMU’ (with R. De Santis) on The World Economy, ‘Procyclicality of credit rating systems: how to manage it’ on the Journal of Economics and Business. Roberta de Santis is a senior economist at the Italian National Institute of Statistics (ISTAT) in the Department of Data Analysis and Economic, Social and Environmental Research. Currently, she is working as a research fellow at the Ministry of Economy and Finance in the Treasury Department. She is also teaching public economics and international economics at LUISS Guido Carli. The key topics of her research are ­European integration, public policy and institutional quality and innovation and productivity. She is a research fellow at the LUISS Lab of European Economics and Associate Researcher of the Laboratory for Comparative Social Research of the Moscow Higher School of

x Contributors Economics. Her most recent publications are ‘Current account “core periphery dualism” in the EMU’ (with T. Cesaroni) on The World Economy (2016) and ‘Environmental policy stringency, innovation and productivity in the EU countries’ (with C. Jona Lasinio) on The Global Economy Journal (2016). John J. Kirton is Director of the G7 Research Group, Co-Director of the G20 Research Group, Co-Director of the Global Health Diplomacy Program, Interim Director of the International Relations program and Research Associate of the Munk School of Global Affairs. He is also Co-­ Director of the BRICS Research Group based at Trinity College, where he is a Fellow. A professor of political science, he teaches international relations, global governance and Canadian foreign policy, and his research interests include global health governance, international finance and trade, trade-environment issues, and foreign policy decision-­making. He ­g raduated from the University of Toronto with a BA in political science, from the Norman Paterson School of International Affairs at C ­ arleton University with an MA in international affairs and from the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University with a PhD in international relations. Ella Kokotsis is Director of Accountability, G7/8 and G20 Research Groups at the Munk School of Global Affairs, based at the University of Toronto. An expert on summit accountability and compliance, Ella has consulted with various governmental and non-governmental organizations, including the Canadian government’s National Round Table on the Environment and the Economy, the Council on Foreign Relations on their African development agenda, the Russian government on global health issues and the Canadian government during their 2010 G8 and G20 summits, and with Chinese officials on arctic climate change. Her PhD scholarly research methodology for assessing summit compliance continues as the basis for the annual accountability reports produced by the G7/8, G20 and BRICS Research Groups. Ella has personally attended most G7/8 summits since 1994 in various capacities. She has written broadly on many aspects of summitry and global governance, has directed the research and publication of numerous analytical documents and has spoken extensively at summit-related conferences and workshops around the world. Author of Keeping International Commitments: Compliance, Credibility and the G7 Summits and co-author of The Global Governance of Climate Change’, Ella holds a PhD in international politics from the University of Toronto. Raffaele Marchetti is a senior assistant professor (national qualification as full professor) in International Relations at the Department of Political Science and at the School of Government of LUISS Guido Carli University in Rome (Italy). Raffaele studied at Rome-La Sapienza University

Contributors  xi and has a PhD from the London School of Economics. His research interest concerns global politics and governance, hybrid and city diplomacy, transnational civil society, (cyber-security) and political risk and democracy. His most recent publications include Partnership in International Policy Making: Civil Society and Public Institutions in Global and European Affairs, Palgrave, 2017, ed.; Still a Western World? Continuity and Change in World Order, Routledge, 2017, co-ed. with S. Fabbrini; and Global Strategic Engagement: States and Non-State Actors in Global Governance, Lexington Books – Rowman & Littlefield, 2016. Chiara Oldani  is Professor of Monetary Economics and Economic Policy at the University of Viterbo ‘La Tuscia’ and Director of the G7/G8 Research Group in Italy. Chiara is a research associate at the Centre for Applied Macroeconomic Analysis (CAMA) at the Australian National University. She has been a visiting scholar at the Center of International Governance Innovation (CIGI) in Waterloo (Ontario, Canada), at the Cambridge Endowment for Research in Finance (CERF) at the University of Cambridge and at the Wharton School at the University of Pennsylvania. Chiara teaches at LUISS Guido Carli University in Rome. Chiara has published several academic papers and book chapters, in both English and Italian, on topics including Greek sovereign risk, derivatives and fiscal policy, and over-the-counter financial derivatives and the complex web of counter-party risk – widely considered to be one of the major precipitating factors of the global financial crisis. Chiara holds a PhD in monetary and financial economics from Tor Vergata University of Rome and an MSc in economics from the University of Warwick (UK). Sven Van Kerckhoven is Assistant Professor and Head of the Business and Economics Department at Vesalius College (Vrije Universiteit Brussel). He received his PhD from the University of Leuven (KU Leuven). He held positions at the Centre for Global Governance Studies, KU Leuven and Stanford University. His research focuses on global institutions and global governance. Sven has published in international peer-reviewed journals and in edited books by leading international publishers. Brittaney Warren is Director of Compliance Research and Lead Researcher for Climate Change and Environment for the G7, G20 and BRICS Research Groups, based at the Munk School of Global Affairs and Trinity College at the University of Toronto. She has published on the effective use of accountability measures in summit commitments, on the G7 and G20’s compliance and governance of climate change and on the G20’s governance of digitalization. Brittaney has lived and worked in Spain and Peru, where she worked on a project dedicated to women’s economic empowerment. Jan Wouters is Full Professor of International Law and International Organizations, Jean Monnet Chair ad personam EU and Global Governance,

xii Contributors and Founding Director of the Institute for International Law and of the Leuven Centre for Global Governance Studies, an interdisciplinary research centre with the status of Jean Monnet Centre of Excellence, at the University of Leuven (KU Leuven). As a visiting professor at Sciences Po (Paris), Luiss University (Rome) and the College of Europe (Bruges), he teaches EU external relations law. As adjunct professor at Columbia University, he teaches comparative EU-US perspectives on international human rights law. He is a Member of the Royal Academy of Belgium for Sciences and Arts and practises law as Of Counsel at Linklaters, Brussels. He is the editor of the International Encyclopedia of Intergovernmental Organizations, Deputy Director of the Revue Belge de Droit International and an editorial board member in ten other international journals. Prof. Wouters has published widely on international and EU law, international organizations, global governance and financial law, including 60 books, 130 journal articles and 200 chapters in international books. Apart from his participation in international scientific networks, he advises various international organizations and governments, trains international officials and is often asked to comment on international events in the media.

Acknowledgements

The editors would like to thank all who have been involved in making this book possible. We thank the sponsors of the G7 Leaders Pre-Summit Conference that took place in Rome in May 2017, where the contributors to this volume gathered: the Rome-based Association of the Encyclopaedia of Banking and Finance (Assonebb), the Leuven Centre for Global Governance Studies, the G7 Research Group of the University of Toronto, the School of Government of Luiss Guido Carli University and the consulting firm Oliver Wyman and its partner Federico Arcelli. We are grateful to CAMSEF – Luiss Guido Carli University for hosting the conference. Particular thanks go to Giuseppe Calabrò, Rocco Ciciretti, Sergio Fabbrini, Giorgio Di Giorgio, Luigi Guiso, Mario La Torre, Rainer S. Masera, Paolo Paesani, Giuseppe Parigi, Gian Paolo Ruggiero, Fabrizio Saccomanni and Gianfranco A. Vento for taking part in the conference and contributing to improve this volume.

Abbreviations

AWG Accountability Working Group BRICS Brazil, India, China, South Africa CARICOM Caribbean Community CDS Credit Default Swap COREPER Commission to the Committee of Permanent Representatives CSO Civil Society Organization CUFTA Canada-US Free Trade Agreement EA Euro Area ECOFIN Economic and Financial Affairs Council ECSC European Coal and Steel Community EEC European Economic Community EU European Union FDI Foreign Direct Investment G20 Group of Twenty G7 Group of Seven G8 Group of Eight GDP Gross Domestic Product GVC Global Value Chain IMF International Monetary Fund IRS Interest Rate Swap LTRO Long Term Refinancing Operation MDG Millennium Development Goal MFP Multi-Factor Productivity MTN Multilateral Trade Negotiation NAFTA North-American Free Trade Association NGO Non Governmental Organization OTC Over The Counter OECD Organization for Economic Cooperation and Development PEI Portfolio Equity Investment PDI Portfolio Debt Investment SDG Sustainable Development Goal TARP Troubled Assets Relief Program

Abbreviations  xv TEU TINA TOES TTIP UKIP UN WGI WTO

Treaty on European Union There Is No Alternative The Other Economic Summit Transatlantic Trade and Investment Partnership United Kingdom Independence Party United Nations Worldwide Governance Indicator World Trade Organization

1 The G7, anti-globalism and the governance of globalization Setting the scene Chiara Oldani, Jan Wouters and Alex Andrione-Moylan Introduction The idyllic setting of the 43rd Summit of the Group of 7 (G7), the ancient Sicilian town of Taormina, Italy, could not stand in greater contrast to the rather bleak prospects for multilateral cooperation that, particularly since 2017, appear to compound the unprecedented challenges that global ­governance has faced over the last decade. Following the aftermath of the economic and financial crisis of 2008, global fora have repeatedly displayed their patent shortcomings in managing, let alone preventing, the negative fallout of globalization – the migration crisis, climate change and international terrorism. These developments are partly a product of the current conjuncture. However, they have their roots in structural flaws of the current international order that, left unresolved, have led to the prospect of the fraying of global multilateralism. With a populist, protectionist and nationalistic President of the United States, whose bombastic rhetoric has been dominating the media since his election, and the unexpected outcome of the 2016 British referendum to leave the European Union (EU), a new wave of opposition to supranational institutions, global cooperation and, more broadly, the economic, social and cultural consequences of globalization appears to be on the rise. As populism has increasingly entered the mainstream of Western politics, it is conceivably ushering in a new phase in the evolution of the global order as well as a new phase of anti-globalism, with contestation of the neo-liberal global order rising from both the regions that have established this order and new non-Western contenders to power. All of these factors came into play in the 2018 Charlevoix G7 summit, marred by deepening rifts and by the heightened rhetoric and hostility Donald Trump directed at his G7 partners, highlighting more than ever the hurdles that multilateral cooperation currently faces. The G7, as a rather non-transparent club of some of the (mostly ­Western) wealthiest and most developed countries in the world, established in ­order to promote global neoliberalism, on the one hand, epitomizes much of what is criticized in the current Western-dominated and legitimacy-thin global order. On the other hand, some of its peculiarities, in fact, explain its undeniable achievements in coordinating efforts in tackling global

2  Chiara Oldani et al. challenges, both within and beyond the G7, which have made it a key player in global governance. This introductory chapter provides an outline of the role, strengths and weaknesses of the G7, particularly in the context of the current challenges raised by anti-globalism movements. It highlights how each contribution to this volume addresses a key dimension of the debate over the outlook for global governance, within and beyond the G7. The chapter begins with an overview of the functioning and evolution of the G7, the ­legitimacy ­issues it raises, its effectiveness and the complex interplay between these two ­dimensions. It then assesses the contestation of the G7 and the new kind of anti-globalism of today. Specific attention is given to economic nationalism and its broader implications in pushing towards global deregulation and fragmentation and the role the G7 might play here. Finally, it points to potential avenues for reform of the G7 that the contributors identify to ensure that this atypical forum is able to make a more legitimate and, thus, more effective contribution to ensuring the resilience of multilateralism and cooperation.

The functioning and role of the G7 in global governance A noteworthy feature of the establishment of the G7 is that it progressively consolidated in the immediate aftermath of the 1973 oil crisis and the abrupt end of the Bretton Woods system, which is perhaps telling in terms of its enduring role in times of crisis. In 1973, the first meeting of this emerging forum took place in the White House library. It brought together the finance ministers of Britain (UK), France, West Germany and the United States (U.S.), as well as Japan, some months later, in what was known as the ‘Library Group’. This became the Group of 5 and, although a precursor of the G7/8, it remained active for another decade. In 1975, French President Valery Giscard d’Estaing and German Chancellor Helmut Kohl decided to establish a similar kind of gathering for the heads of state and government of G5 members, with the addition of Italy; 1 year later, membership was expanded to Canada, a move seen as an effort by the U.S. to counterbalance the European predominance, giving rise to the G7 (Smith 2011). The then European Community was first invited to participate in 1977, represented by the President of the Commission: as of 1 December 2009 – the date of entry into force of the Treaty of Lisbon – the post of President of the European Council is permanent, making it an additional participant in the summits. In 1998, Russia also entered the Group, transforming the G7 in the G8: this addition turned out to be premature and, following Russia’s annexation of Crimea in 2014, its membership was suspended. While it is generally seen as a key player in global governance, the Group of 7/8 has little in common with organizations such as the World Trade ­Organization (WTO), the International Monetary Fund (IMF) or the United Nations (UN). It is not a formal institution, it lacks a charter or statute and, inevitably, there are no fixed procedures or agenda and is more akin

The G7, anti-globalism and the governance of globalization  3 to a club or a concert of ‘likeminded’ – democratic, Atlantic-oriented, highly developed – countries (Smith 2011). Its informality is, of course, its greatest strength in terms of fostering cooperation, and, as will be discussed further below, is also its greatest weakness, in so far as legitimacy and accountability are concerned. Rather than rely on a hard rules-based approach to multilateralism and formal compliance mechanisms, it is uniquely founded upon what has often been defined as an esprit de corps, which leads only to morally binding decisions, but ones that nevertheless have an appreciable impact, both in the form of policy coordination within its membership, as well as on global governance and its institutions. As noted by Dobson (2006), it is useful to think of the G7/8 as operating at the highest levels of global governance, overarching global institutions, in a setting conducive to testing new ideas, reigniting cooperation and putting items on the agenda of formal multilateral fora. Despite the lack of formality, what contributes to the impact and effectiveness of the G7 is arguably born out of the established tradition of holding an increasing number of meetings at the ministerial level from one summit to the next. Aside from the finance ministers, who have met biannually since the very beginning, this has been particularly the case for f­ oreign ministers, who meet in the run up to the summits; the trade ‘Quad’ (US Trade S ­ ecretary, EU Trade Commissioner, Canadian and Japanese trade ministers) which met three to four times a year starting in 1982, but which stopped meeting at the ministerial level some years ago; as well as the environment ministers since 1994, and employment ministers since 1996, while all other ministers meet on a more ad hoc basis. In the course of 2017, b ­ etween March and November, 13 ministerial meetings took place in Italy, covering the areas of culture, energy, foreign affairs, finance, environment, transport, industry and information and communication technology, science, labour, agriculture, home affairs, health and gender equality (­ Presidency of the Council of Ministers 2017b). The need for coordination ahead of and during the summits has also led to the establishment of a third component, i.e. the leaders’ personal representatives, known as Sherpas, who guide the leaders through summits and are responsible for the drafting of the final communiqué based on the leaders’ discussions (Dobson 2006). A final component of what is known as the G7 system is made up of ad hoc Task Forces, Working Groups and Expert Groups, which foster cooperation and pooling of expertise on specific domains, some of which have been active for decades, as have the International Fuel Cycle Evaluation Group (1977), International Energy Technology Group (1979) or the Financial Action Task Force (‘FATF’, 1989) (Hajnal 2016). Much of the significance of this forum is closely related to the nature of its membership, which explains its effectiveness and potential, as well as the concerns with regard to its influence. Although representing only 11% of the global population, G7 members cover 33% of global gross domestic product adjusted to purchasing power (Presidency of the Council of

4  Chiara Oldani et al. Ministers 2017c). This translates, for example, into 41.29% voting rights in the IMF and 46.77% total votes in the World Bank, as of 2018 (International Monetary Fund 2018; World Bank 2018). Thus, when mapping out the role played by the G7, what is particularly relevant to the analyses conducted in this volume are those functions that John J. Kirton has elsewhere (2004) labelled as, inter alia, directional and development of global governance. The directional role refers to the affirmation of principles, essential values and causal relationships that are seen as setting the course in the international arena; development of global governance, along similar lines, refers to the specific efforts that are put into instructing the various global institutional settings in which its members generally play a rather dominant role. One can relate these to what more critical assessments have defined as executive multilateralism (see infra), which came to the fore particularly since the financial crises of the late 1990s (Zürn 2004). The 1996 communiqué, for example, encouraged the UN to enhance its ‘efficiency’ and ‘coordination’, calling for a ‘thorough and urgent review of the UN’s funds and programs’ the following year (Hajnal 2016, p. 87); the 1997 communiqué also urged ‘the IMF and WTO to finalize governance policies consisting of principles and guidelines on best governance’; in the aftermath of the 1997 financial crisis and the 1998 summit produced a memorandum directly addressed to the IMF Executive Board, aimed at ‘Strengthening the Architecture of the International Monetary System’ (Hajnal 2016, p. 89). This kind of modus operandi is, however, what has increasingly brought under fire the Group of 7/8 and the global order it represents and perpetuates. The following section briefly considers how the G7 has developed to respond to a shifting international arena and to ensure its continued relevance, before delving into the demands, challenges and opportunities of today’s global affairs.

An evolving forum and a global arena in transition To begin to unravel the challenges faced by the G7/8, one should start by considering the context in which the Group came to the fore, offering further insights into its initial rationale. This contextualizes its evolution as a result of the tensions that have arisen between that rationale and a global order now in flux. While it can be argued that the G7 members tend to dominate most multilateral settings, both for structural and procedural reasons, the quasi-­universal nature of the membership of the UN, IMF or WTO makes them (potentially) more responsive to recent global shifts of power away from the West, led, in particular, by the members of the socalled BRICS (Brazil, ­Russia, India, China and South Africa). The G7/8, on the other hand, began its ascent just as the U.S. hold on the global economy was slackening, with the sharp rise in oil prices laying bare its inability to anchor the international monetary system. Thus, to ascribe the rise of the G7 merely to post-World War II (WWII) ‘Kantian’ internationalism is to forget how the shoring up of the U.S. and Western-dominated economic

The G7, anti-globalism and the governance of globalization  5 order was an essential aim of this shared bid to hegemony, which some have dubbed the shift from traditional (U.S.) hegemony to group hegemony (Bailin 2001). The truth perhaps lies somewhere in between liberal-institutionalist accounts that emphasize the rise of interdependence and need for concerted governance efforts, and, on the other hand, functionalist explanations that emphasize rational offer–demand dynamics in the development of global affairs, or those that focus on underlying power dynamics. In many ways, what has become increasingly apparent is that there is a tension of sorts between the hegemonic aim of buttressing Western influence and the functional pressure towards opening up global governance to tackle global challenges, which has also set the stage for the bottom-up pressure from civil society (Payne 2008). The awareness that the effectiveness and resilience of the current global order are also dependent on its capacity to respond to change has, arguably, driven the evolution of the G7/8. There are three ­essential areas in which this is most apparent: summit membership and participation, agenda and the involvement of civil society. The matter of membership has been an issue of which this forum has ­always been aware. The move to include Italy, Canada and the EU in the 1970s can be seen in this light. Undoubtedly, more momentous was the inclusion of Russia at the Birmingham summit of 1998, establishing the G8 alongside the G7. This was the completion of a 5-year-long process which had gradually integrated Russia into the club since the Munich Summit of 1992. While in hindsight this addition may seem not only premature, but also somewhat in contrast to the ‘like-mindedness’ criteria for membership mentioned above, the aim here was twofold. On the one hand, lack of representativeness would be finally addressed, shifting the Group’s centre of gravity; on the other hand, from a hegemonic perspective, it signalled that the Western status quo was indeed dominant, and its former nemesis had now been brought into the fold (Hajnal 2007; Payne 2008). However, although significant, what had become apparent with the financial crises of the late 1990s was that a deeper engagement with emerging economies was needed, which led to the establishment of the G20 in 1999, initially bringing together only finance ministers and then extended to the heads of state and government from 2008 onwards (Smith 2011). While the initiative to fill the gap in global governance had originated in the G8, it still left this club with undeniable issues of inclusiveness: the 2005 Gleneagles Summit (UK) led to the establishment of the G8+5 meeting, which included Brazil, China, India, Mexico and South Africa, referred to as the outreach countries. This was made official at the 2007 Heiligendamm Summit, hence the so-called Heiligendamm process. That summit laid down the groundwork for the establishment of the Accountability Working Group (AWG), which since 2009 is responsible for monitoring compliance with G7/8 commitments and publishes its assessment every 3 years (Presidency of the Council of Ministers 2017a). Following criticism of the limited impact of these meetings, and since the suspension of Russia in 2014,

6  Chiara Oldani et al. there  has been a broader outreach session, where in addition to outreach countries, a number of guest countries are also engaged in a more comprehensive manner. At the Taormina summit in 2017, this included the heads of state of Ethiopia, Kenya, Niger, Nigeria and Tunisia, and the President of Guinea, and among international organizations, the African Union, the African ­Development Bank, the UN, the OECD, the IMF and the World Bank (Council of the European Union 2017). In 2018, the Charlevoix summit involved an even broader outreach session, which included the heads of state or government of Argentina, Bangladesh, Haiti, Jamaica, Kenya, Marshall Islands, ­Norway, Rwanda, Senegal, Seychelles, South Africa and Vietnam, along with the organizations which took part in 2017 (Prime ­Minister of Canada 2018). Functional necessity and, as shall become apparent, increasing pressure from civil society have both contributed to shaping the G7/8 agenda. When examining the 1975–2018 G7/8 commitments table compiled by Kirton and Warren (2018), it is quite clear that evolving global challenges have led to the practical need for a broadening of the remit of its action. Its initial remit was confined to macroeconomic policy coordination, international trade, the monetary system and North–South relations. This remained true at least until the early 1980s, when political and security issues began to be added, including terrorism (1978), migration and refugees (1979), non-proliferation (1983) and food and agriculture (1985). Between 1989 and 1993, the end of the Cold War was undoubtedly at the forefront of the G7 agenda; however, also other global issues, particularly climate change and the environment, were included with increasing consistency. As highlighted in Nicholas Bayne’s G7/8 agenda phases (Bayne 2005), it was between 1994 and 1997, within the context of global crises, that the scrutiny and reform of international ­organizations (i.e., development of global governance function) became particularly apparent, with financial regulation making its first appearance (1995). By the end of the 1990s, the scope of this forum had broadened considerably, with health, crime and corruption, information and communication technologies and regional security playing an increasingly important role, alongside more established issues. This trend has continued, in addition to heightened attention to international terrorism from 2002, following the 2001 terrorist attack in the U.S., and a surge in commitments on energy, health and climate change, peaking in 2008 with the start of the first phase of the Kyoto Protocol on the reduction of greenhouse emissions. The latest phase between 2010 and 2017 was marked by the ebb and flow of climate change and declining attention for environmental issues, while commitments expressed in other areas have been more stable. In 2015, gender made its debut as a new issue area and became the focus, alongside terrorism, of the 2017 Taormina summit, which was also marked by an all-time low in ­coordination on tackling climate change. The 2018 Charlevoix summit continued on a similar trajectory, focusing on gender equality, economic growth and the fight against inequality but also the more specific commitment on

The G7, anti-globalism and the governance of globalization  7 ‘Defending Democracy from Foreign Threats’ (G7 2018b). Canada, France, Germany, Italy, the United Kingdom agreed on a ‘Ocean Plastics Charter’, consolidating U.S. isolation on environmental matters, since receding from the Paris Agreement (G7 2018a). In addition, the final communiqué did not receive President Trump’s endorsement, further indication of how achieving common ground among the G7 members has proven extremely difficult with the current U.S. administration (Shear and Porter 2018). While the broadening of the G7/8 agenda has gone a long way in ensuring that the Group’s action remains relevant and effective, its engagement with civil society encompasses issues related to both the procedural and (perceived) issue-specific shortcomings of the club. It was only from 1984 that civil society began to identify the G7 as an effective target of lobbying and contestation, giving rise to ‘The Other Economic Summit’ (TOES), or simply people’s and citizen’s summits. This initial participation from civil society organizations (CSOs) was, however, largely one-sided, with references to non-governmental organizations (NGOs) in the G7 communiqués only emerging since 1995 (Hajnal 2016). The 1998 Birmingham Summit is generally seen as a turning point in the G7/G8–civil society relationship. The ­Jubilee 2000 campaign was successful in placing debt relief and poverty reduction in developing countries firmly on the agenda, triggering a direct response from UK Prime Minister Tony Blair, holder of the G8 presidency. Since then, the presence of CSOs, in terms of both year-around lobbying and position paper ­dissemination – perhaps the most effective in achieving change – and in the form of demonstrations during the summits which receive the most media attention, has become a key aspect of the summits. Still, the 1999 Cologne Summit and, particularly, the 2001 Genoa Summit highlighted a patent inability to manage the largely peaceful demonstrations, with the violence intensified rather than contained by the police forces (Hajnal 2016). These events, combined with the U.S. terrorist attacks in the same year, led to a sensible shift in the conduct of the summits, thereafter held in ­increasingly isolated locations, in order to lower tensions during demonstrations and ensure the security of the G7/8 leaders. The trade-off has been to increase the distance between journalists, CSO representatives and ­protesters, on the one hand, and the G7/8 leaders, on the other. Thus, while civil society engagement has become a permanent fixture, there is an enduring sense, among CSO representatives, that it still lacks the necessary intensity and impact (Matic 2015). Nevertheless, particularly after the ­Gleneagles Summit of 2005, the participation of civil society appears to be well-­embedded in the G7 system. A number of CSOs (over 100 in 2016 and 60 in 2017) are invited to participate in what is now known as the ‘Civil 7’ or C7, which brings together the worlds’ leading NGOs. Their representatives meet with the G7 Sherpas months prior to the summit and then present their proposals in the week leading up to the summit, which are then relayed to the G7 leaders. An important part in mobilizing NGOs is played by the ‘CSO G7 Global Task Force’, which brings together and coordinates

8  Chiara Oldani et al. these organizations in the context of the G7 (Presidency of the Council of ­Ministers 2017e). Of course, this still begs the question of how much more than a formality this latest development actually represents.

Global legitimacy, effectiveness and fragmentation The overview provided above, though far from being comprehensive, offers a sense of how the G7 has become such a significant global player and how functional and societal pressures transformed the initial focus on hegemonic and status quo concerns into a more open and inclusive institution. The following section assesses how the G7/8 relates to some broadly defined issues of legitimacy and how these correlate to effectiveness. This contextualizes the discussion on anti-globalization in the second part of this chapter. As noted, while anti-globalization is far from being a new phenomenon, both international institutions and informal fora, including the G7, have faced a broader, deeper and routine contestation as traditional state-based legitimacy mechanisms – which have also come under fire – are perceived as largely irrelevant in shaping global governance. Beyond the forces that have led to the rise and evolution of the G7/8, its approach to decision-making can be seen as an instance of what some have identified as executive multilateralism, capturing the (normative and perceived) gap between the impact of multilateral fora and their legitimacy and accountability. The ‘gap’ is related to an evaluation of normative legitimacy, which is by definition a normative evaluation of the validity of a claim to legitimacy (Zürn 2004). Here the referent is core legitimacy determinants, as identified by Karlsson-Vinkhuyzen and Vihma (2009). In their framework, input legitimacy can encompass justification flowing from the source of the authority (discourse, expertise, tradition) and the processes (governmental and non-governmental participation, accountability, transparency) envisaged. As emerges from their assessment, informal settings like the G7/8 are clearly ill-suited to fulfil these criteria. Although relying on the mobilization of significant expertise through its Task Forces, it is unclear how and to what extent these feed into decision-making at the leaders’ level and, thus, shape the final commitments. More problematic is its discourse, which has sought to promote a Western-dominated liberal order and – at least traditionally – a quasi-religious faith in economic liberalism and fiscal consolidation in the path to economic growth (Kopp 2007). When it comes to process, the G7’s representativeness is very limited, while its commitments at times are aimed at other regions and its directional role can produce significant knock-on effects, without providing true accountability mechanisms (Karlsson-Vinkhuyzen and Vihma 2009; Kirton 2004). Much of today’s criticism of the G7 is based on these – often well-founded –­ arguments, which should, however, be assessed alongside other factors. As highlighted in the first contribution by John J. Kirton to this volume (Chapter 2; see also below), it is apparent that the G7/8 has in fact shown

The G7, anti-globalism and the governance of globalization  9 significant flexibility, particularly in view of addressing and overcoming successive waves of anti-globalism. This is clearly a key driver of the evolu­ iscourse tion already discussed, which has at least in part transformed its d towards a more inclusive worldview, and potentially provided the basis for an even greater involvement of civil society and deeper engagement with other (non-Western) countries in the future. Moreover, even if effectiveness or, in the framework mentioned above, output legitimacy remains complex to assess, there is little doubt that the G7/8 has indeed been able to ensure relatively sustained action well beyond economic and monetary policy ­coordination. In this regard, Kirton’s further contribution, with Ella ­Kokotsis and Brittaney Warren (Chapter 5), is particularly insightful, as it tracks the ebb and flow of commitments and compliance in the fight against climate change. What emerges is that, especially when it takes an inclusive approach, through coordination with broader multilateral fora (e.g., the G20), as was the case between 2005 and 2015, the G7 is particularly effective. Equally apparent, however, is the enduring compliance gap, as well as how a sudden change of policy among its members – e.g. the U.S. announcing its withdrawal from the 2015 Paris Climate Accord in 2017 or refusing to ­endorse the 2018 Charlevoix G7 joint statement – can seriously undermine the action of the G7. With regard to these hurdles, the authors present a number of solutions, such as identifying a specific agent, avoiding regional specification (communiqué catalysts) and focusing on a larger number of companion commitment on the same issue area per summit. A further and final argument is related to how the G7/8 fits into and contributes to consolidating a certain direction in the evolution of global ­governance. The notion of fragmentation has increasingly been referred to, as multiple and diverse international fora have emerged with their distinct domains, scope and constituencies, all of which flows from the absence of a general legislator at the international level and the consequent emergence of institution-specific secondary norms (Zelli and van Asselt 2013). While many seem to emphasize the distributional dynamics at play, understood as the aim of great powers to exert their influence in small-scale international fora that afford them greater leverage and influence, it is at least as likely that there are also functional forces at play. As discussed above, the interplay between hegemonic (or distributional) and functional dynamics does apply to the G7, which has been seen contributing to this kind of fragmentation, overlapping with and replacing other more inclusive (and l­egitimate) ­decision-making settings (Karlsson-Vinkhuyzen and Vihma 2009). ­However, Zürn and Faude (2013) have argued that, even if there may well be issues that arise from contradicting and competing agendas or appropriate procedures (e.g., dispute settlement mechanisms), fragmentation is inevitable with the increasing ­diversity and number of global challenges, which leads to a functional differentiation among multilateral fora. Moreover, as they observe, fragmentation can be a source of functional and strategic opportunities that are constitutive of, rather than at odds with, the emergence of an international polity.

10  Chiara Oldani et al. The G7, from this perspective, can be seen as among those minilateral (as opposed to multilateral) institutions which, on the one hand, score very poorly when it comes to legitimacy criteria, but on the other, precisely because of that (i.e., homogeneous interests, lack of transparency and flexible commitments) are very effective in building consensus and jumpstarting c­ ooperation in multilateral settings. A case in point is, once again, ­action on climate change: increasing opposition to the binding targets of the Kyoto Protocol and significant divisions with regard to the future of climate governance made for complex negotiations. The convergence towards the U.S.-proposed voluntary pledge-and-review system was the result of ­action undertaken within and by the G7/8 – alongside climate change-specific fora, e.g. the Asia-­Pacific ­Partnership on Clean Development (APP) – which overcame the global deadlock and ultimately led to the Paris Agreement ­(Karlsson-Vinkhuyzen and ­McGee 2013). In essence, the relationship between input legitimacy and ­effectiveness is a complex one, and the debate over the future relevance and role of the G7 should reflect this ambivalence. Given the evolving challenges this unique forum is confronted with, the multifaceted character of the G7 that emerges from this overview provides the backdrop to the analysis below.

The G7 and anti-globalism (1975–2008) In the first part of this chapter, the G7/8 emerges as a combination of distributional and functional dynamics, which place it at the crossroads between supporting Western hegemony and addressing the challenges and opportunities that arise from an interdependent and often fragmented world. This gave rise to a particular brand of executive multilateralism, in which concerns over normative legitimacy deficits (cp. supra, Zürn 2004) were by no means at the forefront of discussions among its members. Rather, between its inception in 1975 and the early 2000s, the G7’s peculiarities turned it into a significant addition to global governance that was able to handle the c­ riticism it nevertheless received. Three key features contributed to this. Firstly, populism was yet to make its mark on the Western political scene. Thus, both supranational organizations (i.e., the EU) and ­intergovernmental fora could rely on a strong consensus among political elites and a relative lack of engagement among voters (Hooghe and Marks 2009). Secondly, this consensus extended to non-Western countries, which only at the turn of the millennium would truly begin to attain the political and economic leverage to challenge Western primacy (e.g., the BRICS leaders only began to meet in 2009). Finally, bottom-up anti-globalism, even if it was increasingly able to attract the attention of the media, emerged essentially from the margins of a budding transnational civil society. These features were embedded in what is generally known as the postWWII neo-liberal consensus, which since then had constituted the essential driver of economic globalization, through the spread of free trade, privatization, restrictive fiscal and monetary policy and democratic institutions, where and when these could be established (Broad and Cavanagh 1999).

The G7, anti-globalism and the governance of globalization  11 In this phase, the G7/8 did evolve in order to address criticism of its lack of inclusiveness, both in terms of membership and vis-à-vis civil society. Arguably, those changes, although not insignificant, did not f­ undamentally subvert the nature of this forum or its enduring balancing act between distributional and functional pressures. All of the conditions under which the G7/8 operated in that phase essentially allowed it to rely on its output ­legitimacy, thus responding to burgeoning opposition through its ability to effectively shape global cooperation. This is outlined with great clarity by John J. Kirton in this volume (­Chapter 2), who describes how successive shocks activated the awareness of G7 leaders and forced them to expand their agenda to strengthen the openness and ­advantages that globalization brings, in order to enhance the social and ecological protections that benefit all. He argues that since its start in 1975, the G7/8 has consistently confronted and overcome surges in anti-­g lobalization sentiment among publics within and beyond its members. It has done so best when it has been true to its distinctive foundational values of globally promoting open democracy, individual liberty and social advancement. In the 1970s, an era of simultaneous slow growth and high inflation produced paralysis in the Tokyo Round of multilateral trade negotiations (MTN) and a broader crisis of confidence in democratic governance. It was then that the establishment and rise of G7 summit governance, with the involvement of the EU, led to the successful conclusion of the Tokyo Round by 1979. In the 1980s, a deep recession fuelled the election of the neoliberal Ronald Reagan in the U.S., and the socialist François Mitterrand in France, creating a deep divide between them in the G7 over the appropriate path to restore inclusive growth. However, they launched the ultimately successful Uruguay Round of MTN in 1986 and attained the G7-led victorious conclusion to the Cold War, when Michael Gorbachev sent his surrender letter on behalf of the Soviet Union to the G7 Paris Summit in 1989. In the 1990s, G7 summits faced increasingly violent protests in the streets, despite their contribution to completing the Uruguay Round and fostering the creation of the WTO in 1995 and having brought a democratizing Russia into a new G8 summit by 1998 and being supported by a broader G20 of finance ministers by 1999. ­ rchestrated It is at the end of this phase that the direction of globalization, o inter alia by the G7/8, was eroding the relevance of national political ­structures, all while addressing its action towards – and thus ­c reating – a transnational constituency that until then had not existed. The focus on output legitimacy, or functional and distributional effectiveness, was, in this context, a perilous one. By removing barriers and borders, globalization was becoming a social and cultural phenomenon that directly affected citizens without, however, putting into place effective mechanisms that would ­allow their voices to be heard (Zürn 2004). The rise of the anti-­g lobalization movement, while peripheral in many respects, in hindsight was a sign of how the development of global governance, through the WTO, IMF and World Bank, was, as a byproduct, forming a transnational public and

12  Chiara Oldani et al. political sphere, which would in time contribute to the global shifts and developments of today. As effectiveness began to decline in the midst of increasing financial instability from the mid-1990s, the tension between the emergence of a transnational public sphere, without a legitimate political structure in place, contributed to the intensification of demonstrations at international summits at the turn of the century. This kind of global activism brought together very different players. It did not merely amount to those that expressed anarchist worldviews and saw as the solution to the world’s evils the uprooting of global governance structures. It included those NGOs which advocated reforming the global order towards legitimacy, accountability and social justice and that sought to engage and contribute constructively (Bleiker 2002). As noted by Mary Kaldor (2000), this was neither the end of globalization – or liberalism for that matter – nor inconsequential. ­Although limited to a specific dimension of civil society, the culmination of this phase contributed to bringing about the end of the neoliberal consensus: globalization became a contested notion, marking the start of the politicization of global affairs, which gradually began to reshape political cleavages.

The G7 and the populist backlash (2008–present day) The financial and economic crisis of 2008 can be interpreted as a ­significant catalyst for global change, with long-lasting ripple effects. First, this ­watershed moment suddenly revealed the legitimacy gap that executive multilateralism had engendered between global decision-making and national political structures – what some may define as a heightened salience of these issues (Oppermann 2008). The global crisis, soon compounded by the ­specific challenges of the sovereign debt crisis in the EU, the rise of the ­terrorist threat across Western Europe and the intensified migration flows towards Europe, definitively demonstrated the flaws of a system based on the acceptance generated by its own effectiveness. Until then, transnational legitimacy had not truly mattered. However, as the fallout of the crisis hit the most vulnerable across the members of the G7, and both supranational and intergovernmental institutions appeared to be rather ineffective in dealing with these challenges, the somewhat marginal transnational contestation spilled over into national politics. Thus arose the second shift: the rise of populism and the end of the elite consensus. The convergence, particularly throughout the 1990s, of both the centre left and the centre right on an internationalist, pro-European and, crucially, neoliberal agenda in time generated a political void, which was filled by illiberal political forces, which demanded the re-politicization of what had turned into the inevitabilities of the time (Mudde 2016). In order to ­better understand current political discourses about globalization, R ­ affaele ­Marchetti’s contribution (Chapter 3) sheds light on the transforming conceptual landscape that draws the boundaries of the current political ­debate within the G7. Marchetti identifies four master frames that delimit the boundaries of

The G7, anti-globalism and the governance of globalization  13 the current ideational debate on global politics, especially after the financial c­ risis: whereas two approaches are pro-globalization (neo-liberalism and cosmopolitanism), two are against globalization (localism and civilizationism). The author convincingly demonstrates that these master frames go b ­ eyond the traditional left–right cleavage and enhance the understanding of the current political developments in the G7. The chapter highlights how, without focusing on the set of master frames centred on globalization, one cannot fully capture the political orientation of the G7. It does so by focusing on the normative debate on globalization and by examining the main master frames that have been developed in the last decades with reference to global politics. An aspect of these developments which is particularly relevant to this book’s analysis is that, within this shifting political landscape, populist parties can be seen as anti-globalization forces, which emerge from national demands for opposition to globalization, rather than advocating ­alternative forms of globalization (or alterglobalism; see Marchetti, this volume). By framing globalization as an elitist phenomenon, which encroaches upon state sovereignty (and leads to greater European integration), also fragmenting and contaminating national, culturally homogeneous, community-­ based civil society, globalization and European integration became the main targets of populist parties (Zaslove 2008). The manner in which these anti-establishment forces broadened the scope of their ideology is hardly surprising, considering how it is based on the reductionist but rhetorically effective dichotomy between the pure People and the corrupt elite (Mudde and Kaltwasser 2013). Its electoral success was perhaps more limited than might have been expected, as the recent elections in the Netherlands, France and Germany in 2017 indicated, confirming that these parties are often not seen as credible governing forces (although they played a key role in the 2017 Austrian governing coalition and obtained about 50% of the votes in the March 2018 Italian general elections) (Bremmer 2017; Henley 2018). The populist threat marks the rise of a new awareness among political elites of a ‘populist backlash’, which has placed the importance of re-engaging with voters firmly on the agenda, if with limited material impact thus far (e.g., see Taormina Summit ‘Mission’, infra). In other words, the debate over sociological legitimacy, as in the societal acceptance of authority as legitimate and the second core dimension of legitimacy (in addition to the normative, Zürn 2004), has emerged within and beyond the nation state. In this sense, the 2008 economic and financial crisis opened a new phase, by acting as a catalyst for the rise of unprecedented contestation from within the mainstream of domestic politics among Western democracies, while strengthening contestation from non-Western countries, as economic growth in the U.S. and the EU struggled to get back on track and countries like China and Russia recovered far more rapidly (Kose and Prasad 2010). This is what defines the new phase of opposition to the Western-dominated global order, which has become somewhat more acute following recent developments: the 2014 annexation of Crimea by Russia and the subsequent suspension of its

14  Chiara Oldani et al. membership in the G8; the outcome of the 2016 British referendum to leave the EU, which will lead to fundamental changes in the EU–UK relationship; and the election in 2016 of a populist president in the U.S., Donald Trump. In this volume, Jan Wouters and Sven Van Kerckhoven (Chapter 4) ­assess the fallout of these key events, both in the context of the EU and the G7, which face very similar challenges, as well as through the prism of the ­contribution of the EU to the activity of the G7. The EU, itself a product of deep and broad multilateral cooperation between 28 states at the regional level, has committed itself to promoting multilateral solutions to common problems and to working towards ‘good global governance’. The EU has unique features to make policy contributions in the G7 that are both technically well-elaborated and democratically supported, thereby potentially adding to the legitimacy of both the G7 and global governance. The authors look into how, since its representation was introduced in 1977, the EU has sought to magnify its impact on global governance through cooperation with G7/8 members. While this has undoubtedly constituted an effective partnership, the authors note how recent events have weakened the G7 as an effective forum, even while leaving greater opportunities for EU-led agency. The EU-27, however, will not be able to rely on the UK’s support any longer. Finally, the U.S., once the driving force of the G7/8, is ostensibly retreating behind ­domestic borders and the protectionist and illiberal views of P ­ resident Trump. At the 2018 C ­ harlevoix Summit, this trend emerged in the form of a deepening divide between the U.S. and the other G7 members driven by Donald Trump’s hostile stance and retaliation against ‘unfair’ tariffs targeting U.S. exports (­ Rampton and Vey 2018). Western-led global coordination is likely to be hampered by these developments, the authors argue, making other more inclusive fora such as the G20 potentially better-­suited to this new era. This is not to say that the G7 no longer has a role to play in the future of global governance. The issues at stake are indeed multifaceted, particularly when it comes to defining how the G7 should respond to these challenges. It is not by chance that the 2017 Taormina summit chose as its mission ­‘Building the Foundations of Renewed Trust’. The statement of the Italian government acknowledged that [c]itizens are increasingly sceptical of their governments’ ability to ­ eliver on issues that affect their daily lives, ranging from security to end ­ ehind vironmental sustainability to economic well-being. Therefore, b the mission of the Italian presidency stood the notion that governments should first and foremost adopt policies aimed at meeting their ­citizens’ overall expectations. Faced with such challenges, Italy rested the ­program of work of its G7 Presidency on three pillars: citizens’ safety; economic, environmental and social sustainability and reduction of ­inequalities; and innovation, skills and labour in the age of the next production revolution. (Presidency of the Council of Ministers 2017d)

The G7, anti-globalism and the governance of globalization  15 G7 Leaders in Taormina also released the ‘People-Centred Action Plan on Innovation, Skills and Labour’ that, even if it still needs effective implementation in order to achieve its aims, focuses on the role of the technology and production revolution in modifying the structure of the labour market, and how specific action should be taken in order to safeguard citizens. Most notably among ministerial meetings, the Bari meeting of central bankers and treasury ministers led to a common agenda on growth and inequality; finance ministers and central bankers affirmed that the global economy is facing a prolonged period of modest growth and high or rising inequalities in many countries (…) undermin[ing] confidence and limit[ing] future growth potential owing to low investment (notably in human capital) and weak productivity. (…) By locking in opportunity privilege and exclusion, inequalities may contribute to regional divides, undermine intergenerational mobility, while putting stress on social cohesion and institutions. (G7 2017, p. 1)

The fallacy of economic nationalism and the ‘disintegration’ of global affairs Although encouraging, these declarations should not lead to the conclusion that these diverse and complex global challenges will be overcome with ease. However, contemporary developments are not a prelude to the collapse of the current order. More simply, that order is a system rooted in a different era, which fails to reflect the geopolitical and societal shifts that have occurred over the last decades. Although it has evolved, in times of crisis its enduring shortcomings emerge, which are yet to be fully addressed. Failure to do so has, arguably, opened the possibility of a deterioration of global governance. This final section highlights some emerging features in global affairs, which may be useful to consider when looking at what lies ahead for global governance. How do populists conduct global affairs? This is the question confronting the world since 2016. Both Donald Trump and the Brexit ‘Vote Leave’ campaign won on a platform that pitted the ‘real economy’ against the international one, whether global or European, which relates to the protection of a culturally homogenous national community and tackling the (perceived) threat stemming from globalized production and immigrant work forces (Rachman 2018). In practice, however, it would appear that this kind of economic nationalism is, at least to a certain extent, a fallacy. While among the Brexiteers, especially since the vote, there have always been hyperglobalist undertones, advocating unfettered and unregulated capitalism and in many ways contradicting the main thrust of their own campaign rhetoric, the picture is rather more complex in the case of the current U.S. President (Bell 2017). Trump’s withdrawal from the Trans-­Pacific ­Partnership (TPP) effectively portrayed him as a protectionist. The outcome of the renegotiation

16  Chiara Oldani et al. of North-American Free Trade Association (NAFTA), also heavily criticized during the election campaign, was not yet certain mid-2018. However, following Trump’s announcement on 1 March 2018 that tariffs would be imposed on imported steel (25%) and aluminium (10%) – a move that initially exempted and then was extended to Canada and Mexico, two of the largest exporters of steel to the U.S., as well as the EU – there was some indication that he appeared to be intent on staying true to his campaign promise (Lynch, Long, and Paletta 2018; Swanson 2018). This does not imply, however, that he is an isolationist and some have begun to talk of the rise of a U.S. illiberal hegemony (Posen 2018). Trump displays, rather, a highly utilitarian approach to both domestic and global affairs, where the protection of U.S. corporate interests appears to be a key driver in his administration’s policy-making. This emerging protectionism is coupled with a domestic deregulation trend, particularly in the areas of finance, upon which Congress has already acted, by beginning the repeal of the 2010 Dodd-Frank Wall Street Consumer Protection Act, in June 2017 (Rappeport 2017). As ­Obama-era environmental and consumer protection regulations are rolled back in the U.S., a protectionist attitude on trade is coupled with a resistance towards rules-based international fora, including the WTO, the UN and even the North Atlantic Treaty Organization (NATO), in an international landscape which is increasingly atomized and uncertain. The harsh rhetoric levelled against these fora indicates how the current U.S. administration sees as more desirable an international arena in which the U.S. can act unilaterally, unencumbered by the constraints and commitments that come with multilateralism, whether in international trade (The Economist 2017), security (Wright 2017) or human rights (Nebehay 2017). Just as deregulation is not tantamount to open trade, protectionism (or a protectionist rhetoric) does not exclude a propensity for a ‘deregulated’ global environment (Irwin 2017). This could lead to the prevalence of short-termism and the disregard for the attempts made at addressing the negative externalities of economic activity, as through commitments to fight climate change. It is from this perspective that the legitimate concerns over the direction and effectiveness of the global order may have been hijacked by elite-driven agendas that, by weakening the existing structures of multilateral cooperation, will conceivably exacerbate rather than prevent the threats that generated those concerns (Bell 2017). The 2018 Charlevoix summit seems to confirm this trajectory, with President Trump unequivocally attempting to undermine the credibility and unity of the G7 not only by reversing his endorsement to the final communiqué, but also suggesting Russia should re-enter the forum, all with the aim of pressuring his G7 partners to accept the U.S. agenda on trade (Schumacher and Winter 2018). While they may well be simply crude political tactics, rather than a true global strategy, their impact on the legitimacy and effectiveness of these kinds of multilateral settings should not come as a surprise. These are the kind of challenges the G7 will need to address. There are already some signs of the impact of such dynamics on its effectiveness: notably, for the first time in 5 years, at the 2017 Taormina ­summit, no commitments

The G7, anti-globalism and the governance of globalization  17 were made on financial regulation. The two final contributions to this volume highlight emerging shortcomings in the post-2008 G7 performance in achieving financial stability and strengthening policy coordination in order to maintain and ensure greater growth and p ­ roductivity among G7 members. Chiara Oldani (Chapter 6) examines the dynamics of public debt of G7 countries and highlights its hidden risks, since policy coordination is decreasing as a result of increasing anti-­globalism and the de-regulating wave that seems to be emerging on the back of growing populism. Increasing public debt requires appropriate risk management policies, since financial risks can propagate and affect the stability and growth of the economy. Increasing financial risks in the global financial system undermine the sustainability of public debt, regardless of the structural reforms undertaken. These risks arise, in particular, from the widespread use of over-the-counter (OTC) contracts to hedge the outstanding debt of G7 countries, in the absence of transparent accounting and monitoring systems. Tatiana Cesaroni and Roberta de Santis (Chapter 7) analyse institutional quality, foreign capital composition and productivity dynamics in G7 countries in the period 1996–2015. The central role of international capital transactions during the financial and sovereign debt crises has encouraged policy discussions, in the G7 framework, on the benefits and costs associated with capital mobility. International capital transactions might support long-term growth and convergence among countries, but at the same time they might also determine policy challenges associated with current account sustainability and financial stability. The composition of foreign capitals is strictly related to the institutional framework. Differences in institutional quality, determining different foreign capital compositions at country level, might be the cause of heterogeneity in economic growth rates. Both these c­ ontributions point towards some emerging decline in the effectiveness of the G7, as a result ­ ultilateral cooperation of some of the dynamics examined in this chapter. M is not a given and those that are committed to it, starting from the EU and its members, will have to step up their efforts in the run up to the U.S. (2020) and UK (2021) summits, in order to uphold and reform global cooperation.

Conclusion This introductory chapter, while offering its own insights on the complex challenges the Group of 7 is facing, with the evolution of anti-globalism and a shifting global arena, demonstrates how this volume helps to make sense of contemporary developments in global governance and the G7. Placing this unique forum at the heart of contemporary debates on global governance is an effective way to diagnose change, as it shows that the issues at stake are multifaceted and that there are no straightforward solutions. While some of the G7’s features are indeed anachronistic, in terms of inclusiveness and transparency, the relationship between legitimacy and effectiveness is a complex one, as it has to deal with the reality that in an increasingly fragmented global order these kinds of informal minilateral

18  Chiara Oldani et al. settings may hold the key to rebuilding and maintaining cooperation where it is at risk of faltering. This chapter has traced, on the one hand, how ­hegemonic (or distributional) dynamics and the functional forces of interdependence in the G7 have contributed to eroding the normative legitimacy of global governance, as anti-­g lobalism from the margins of civil society has turned into mainstream contestation and the decline in the acceptance (sociological legitimacy) of this kind of executive multilateralism. On the other hand, it has also highlighted how the G7 club has evolved significantly over the decades, reaching out to civil society and to other non-Western countries, which, nevertheless, did not prevent it from relying largely on its output legitimacy. It has explored how the economic and financial crisis of 2008 served as a catalyst to accelerate these processes by igniting populist contestation within Western countries and also introduced the more recent contestation from the BRICS, as economic and geopolitical balances began to shift. The dynamics of the new phase in anti-globalism have come to the fore with the rise of populism in the West and, in particular, Brexit and the Trump Presidency, both of which potentially open up an atomized and ‘deregulated’ international arena. Each contribution in this volume points to avenues that might allow ­renewing and strengthening the role of the G7 in times of global change, with a view to strengthening its legitimacy and effectiveness. Kirton ­suggests integrating civil society participation, creating a formal role for parliamentarians of G7 members, and introducing scrutiny of G7 compliance by independent experts. Marchetti advocates turning the G7 into a forum to open up the debate over globalization and its future trajectory, in light of the politicization of global affairs. Wouters and Van Kerckhoven envisage a strengthened role for the EU in order to improve the effectiveness and the implementation track record of the G7, taking advantage of the absence of Russia to strengthen multilateral cooperation. Kirton, Kokotsis and Warren point to key drivers of compliance by G7 members with summit commitments, identifying a specific agent for the implementation phase, a coherent communiqué with strategically reinforcing commitments, holding pre-summit ministerial meetings and securing support from UN summits. Oldani indicates that the G7, alongside other global governance fora, should address the lack of transparency and regulation with regard to the use of OTC derivatives in the management of public debt, given their potential for increasing systemic risk and financial instability. Cesaroni and De ­Santis argue that G7 countries should promote an internationally coordinated policy mix which exploits the interaction among structural reforms on both national and international levels to improve institutional quality, creating a virtuous circle of ‘better institutional quality-more financial stability-­ more economic growth-low inequality’. Across all the contributions to this ­volume, from their differing perspectives, the G7 emerges as a player that, conceived in times of crisis, still has much to offer in today’s uncertain times. To do so, however, it may have to confront head-on its weaknesses.

The G7, anti-globalism and the governance of globalization  19

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2 Advancing global openness G7 governance of globalization John J. Kirton

Introduction: the challenge As the responsibility for hosting the annual Group of Seven (G7) summit passed to its least powerful members – Italy in 2017 and Canada in 2018 – the group faced an apparently new problem arising within its leading ones. Its public face was a proliferation of populism and protectionism ­c entred on the United Kingdom’s (UK) decision in a referendum to leave the ­European Union (EU) and the election in the United States (U.S.)of a ­republican president and congress promising to make ‘America great again’ by cutting itself off from the multilateral institutions and liberal democratic order that the U.S., the UK and Canada had pioneered in the 1940s after the devastation of two world wars and one great depression from 1914 to 1945 (­ Ikenberry 2001, 2011). As 2017 ended and 2018 began, this ­A nglo-American assault on the edifice that had brought peace and prosperity to so many for 70 years seemed to sharpen. The British government, despite its drop to a ­m inority government position in the general election Prime Minister ­T heresa May chose to call, continued its negotiations to leave the EU, even as the rising economic costs became clear. Meanwhile, on the other side of the ­Atlantic, President Donald Trump withdrew the U.S. from the just negotiated Trans-Pacific Partnership (TPP) free trade area, the historic UN Paris Agreement on climate change, the United ­Nations Economic, ­Scientific and Cultural Organization and the UN compacts on migration. Trump also ­attacked the World Trade ­Organization (WTO) and replaced the multilateralism these international institutions embodied with ­ nilateral approach he thought would give the U.S. the upa bilateral and u per hand. The populist, protectionist wave seemed to spread to continental Europe, as nationalist right-wing parties entered the German Bundestag in general elections in September, and took power in Poland, Hungary and Austria as 2017 came to an end. In the face of this onslaught, it was easy to conclude that the G7 summit in Taormina, Italy, in May 2017 and the broader G7 system had failed to turn the tide and to promote its foundational mission of globally promoting open democracy, individual liberty and social advance.

Advancing global openness  23 The debate Such was the consensus among most observers about the performance of the G7 in 2017. Most focused on its failure to convince Donald Trump to remain in the Paris Agreement, to renounce trade protectionism and to welcome immigration, especially from the Muslim world. The common cause of the failure was well expressed by Stewart Patrick (2017: 2) who judged that ­‘President Trump had a dismal first meeting with the U.S.’ most important Western partners, behaving boorishly and finding himself isolated on climate and trade policy’. A harsher variant saw a dangerous failure, due to Trump’s false personal convictions about climate change, coal, the North A ­ tlantic Treaty Organization (NATO) and migration (Krugman 2017; Revesz 2017). Some even said Taormina marked the imminent death of the G7 as an international institution, as it revealed that Americans and ­Europeans have very little in common, that the Group of 20 (G20) summit would become a much more significant gathering and that Trump was ­starting to look beyond the G7 to other forums (Kawanami 2017; Rahr 2017). In contrast, a few saw Taormina as a success, even on trade protectionism. Matthew Dalton and Giovanni Legorano (2017) reported that Trump was a willing negotiator who listened closely, delved into the details of the discussions and communiqué drafting to make progress on climate change, produce an agreement to ‘fight protectionism’ to support the WTO in enforcing trade rules, defend those hurt by globalization and maintain sanctions on Russia for its aggression in Ukraine. Others highlighted the communiqué commitment ‘to keep […] markets open and to fight protectionism’ further highlighting the G7’s unity against North Korea and terrorism (­ Yomiuri Shimbun 2017). Such success was due in part because Japanese Prime ­Minister Shinzo Abe, with his good personal relationship with Trump, acted as a bridge to stress the need for G7 unity (Japan News 2017). The dominant view of Taormina as a failure was consistent with growing doubts about G7 governance. To be sure, earlier works on G7 summitry had noted its success in countering outbursts of anti-globalist populism and protectionism (Fratianni, Savona and Kirton 2003; Kirton, Daniels and Freytag 2001; Kirton and von Furstenberg 2001;). Yet recent assessments presented the G7 as an institution in decline since Russia’s suspension from the G7 for its annexation of Crimea in 2014, the shift in global power to a rising China, India and other emerging economies and the creation of the bigger, broader G20 summit in response to the global financial crisis in 2008 (Kirton 2013). As 2017 unfolded, even those who had long argued that the G7 was an essential global security governor and effective global governor suggested that the G20 summit was rising to take the G7’s place as global security governor and the guardian of a liberal order under severe assault (Kirton 2017a, 2017d). However, these competing views are not based on a detailed, systematic analysis of how recent G7 summits have performed in their own right or

24  John J. Kirton as an essential partner for the G20 ones (Larionova and Kirton 2015). Nor did the extensive scholarly literature on G7 governance address how the G7 fostered social advance and equality for citizens both within and beyond its members. It thus overlooked the links between open democracy and individual liberty as the foundation for the social and economic equality among individuals that prevents the extremes of parochial populism and protectionism from erupting and threatening democracy itself. This study takes up this task. The argument This study argues that since its start in 1975, the G7 has recurrently c­ onfronted and conquered surges in anti-globalization sentiment among publics within and beyond its members’ states. It has done so increasingly since it first identified ‘globalization’ at its Toronto Summit in 1988. It has succeeded best when it has been true to its distinctive foundational values – of globally promoting open democracy, individual liberty and social advance. In the 1970s, an era of simultaneous slow growth and high inflation produced paralysis in the Tokyo Round of multilateral trade negotiations (MTNs) was accompanied by a broader crisis of confidence in democratic governance, but then the birth and growth of G7 summit governance, that included the EU, finally helped conclude the Tokyo Round by 1979. In the 1980s, a deep recession fuelled the election of a strongly right-wing Ronald Reagan in the U.S., a strongly left-wing François Mitterrand in France and deep divisions between them in the G7 over the proper path to restore inclusive growth. But they soon joined to launch the Uruguay Round of MTN in 1986 and create the G7-led Cold War victory and democratic revolution when Mikhail Gorbachev sent his surrender letter on behalf of the Soviet system to the G7’s Paris Summit in 1989. In the 1990s, G7 summits faced increasingly violent protests on site and pervasive popular discontent towards G7 leaders, culminating with the ‘battle of Seattle’ at the WTO’s ministerial meeting in 1999. This was even as they helped create the WTO and complete the Uruguay Round in 1995, brought a democratizing Russia into a new G8 summit by 1998 and helped generate a broader finance ministers G20 in 1999. The next decade brought new assaults from global terrorism on 11 September 2001, and the great American-turned-global financial crisis on 15 September 2008. Yet it saw the G8 and its sister G20 summit in 2008 soon contain these new threats from post-Cold War globalization, restore economic growth, shape socially sustainable globalization and successfully support health and the broader Millennium Development Goals (MDGs) by 2010 (Drezner 2013). The next decade brought new, more diverse and diffuse challenges from globalization. These range from the European financial crisis of 2010–2013, Russia’s invasion and annexation in Ukraine in 2014 and the upsurge in deadly terrorism by Islamic State (IS) and its followers to the UK’s decision

Advancing global openness  25 to leave the EU in June 2016, the U.S. election of a populist, protectionist president in November 2016 and fears of refugees flooding into Europe and the U.S. from war-torn countries to the south. Yet these challenges were no more severe than those the G7 had overcome in the past. The G7’s 2017 Taormina Summit clearly showed G7 leaders were on track to again sustain globalization and steer it towards more socially inclusive and sustainable paths. It tempered the protectionist instincts of Donald Trump at his first summit and featured a strong action on gender equality as a source of economic and social development. It also advanced the UN’s 2015 Sustainable Development Goals (SDGs) and tackled terrorism. Its greatest failure was in effectively countering the central, most urgent and, indeed, potentially existential threat from globalization – climate change. The G7’s recurrent success in governing socially sustainable ­g lobalization is well accounted for by the six causes highlighted in the concert equality model of G7 governance. An expanding array of external shocks from the security, ecological and economic realms, of both a state-created and nonstate sort, were periodically reinforced by mass protests from citizens within G7 states, making their leaders aware that a more socially sustainable path was needed. The major multilateral organizations created since the 1940s were poorly designed to meet this need, leaving the G7 members to act increasingly as equals to have their collectively predominant capabilities guide global governance as a whole. Their common principles of open democracy, human rights and social advance allowed their leaders to politically lead their domestic publics to move internationally in this way, through an intimate G7 club they cherished as their own. Such success seems likely to endure. Canada as the host of the G7 summit at Charlevoix on 8–9 June 2018 had put inclusive economic growth, and gender and generational equality at the core of its priorities. France as the summit host in 2019 has already set priorities that reinforce this thrust. The G20 summits in a democratic, reforming Argentina in 2018 and G7 member Japan in 2019, are likely to perform in supportive ways. The test will come when the G7 summit is hosted by the U.S. in 2020 and the UK in 2021. But by then the current assault and leading advocates of anti-globalization are likely to be defeated by effective G7 governance in the next few years. The analysis To support this argument, this chapter first reviews the G7 response to surges in anti-globalization sentiment in each decade since its start, with a focus on the trade agenda that has been at the continuing core of populist, protectionist assaults. Second, it considers the causes of the G7 response and success, drawing on the six determinants featured in the concert equality model of G7 governance (Kirton 1999, 2013). Third, it examines most closely the G7 summit in Taormina, Italy, in May 2017, when many felt anti-­ globalization populism and protectionism were at their peak at this first

26  John J. Kirton summit attended by newly elected U.S. president Donald Trump. Fourth, it concludes by considering the G7 summit’s overall performance, prospects and proposals for countering anti-globalization.

The cadence of G7 anti-globalization governance, 1975–2016 Since its start in 1975, the G7 summit has recurrently, and since 1998 ­increasingly, confronted and conquered surges in anti-globalization sentiment among publics within and beyond its members’ states. The 1970s The 1970s saw the new G7 summit turn the dark night of anti-globalization despair to the bright daylight of liberalizing trade, welcoming immigrants and controlling climate change by decade’s end. The despair came from the first extended period since 1945 of stagnant or slow economic growth in the advanced industrial countries, accompanied by persistent high inflation, for a new normal labelled ‘stagflation’ (Putnam and Bayne 1984, 1987). It led publics to question the Keynesian economic model and prescriptions that had long worked so well, including the value of the successive rounds of trade liberalization brought multilaterally by the General Agreement on Tariffs and Trade (GATT) and regionally by the European Community. ­Although GATT members launched the new Tokyo Round of MTN in 1972, progress was immediately paralyzed by the recession and inflation created within Organization for Economic Co-operation and Development (OECD) countries by the first Middle Eastern oil shock of 1973. Reinforced by a growing Soviet Union bloc, it further bred a broader crisis of confidence in governance based on democratic principles and practices, highlighted by Canadian Prime Minister Pierre Trudeau at the end of the G7 San Juan, Puerto Rico Summit 1976. The U.S., the UK, France, Germany and Japan responded by elevating their ‘Library Group’ of finance ministers’ meetings since 1973 into a summit ­ ambouillet, of leaders, with Italy added, first held in secluded privacy at R France, in November 1975. There they authorized a new monetary regime of flexible but managed exchange rates, but fundamentally deciding to institutionalize their summit with a core mission of promoting globally the principles and practices of open democracy, individual liberty and social advancement. After their second summit in San Juan, Puerto Rico, with resource rich Canada added, the G7 brought to its third summit in London, England, the European Commission due to its legal competence in trade. There the summit started to focus on injecting G7 leaders’ unequalled ­political authority into completing the Tokyo Round (Cohn 2002). They continued at the G7’s summit in Bonn, Germany, in 1978, where macroeconomic policy stimulus based on Keynesian prescriptions was agreed to create jobs (Table 2.1).

Table 2.1  G8 overall performance, 1975–2017 Year

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Grade

A− D B− A B+ C+ C C B C− E B+ D C− B+ D B− D C+ C B+ B C− B+ B+ B B B+ C C+ A− B+

Domestic political management

Deliberation

Direction setting

Decisionmaking

Delivery

Development of global governance

Participation

No. of communiqué compliments

Spread (%)

No. of No. of days statements

No. of words

No. of No. of Compliance No. of No. of references commitments assessed ministerials to core created values

No. of No. of No. of officialmembers participating level groups countries created

No. of participating international organizations

2 0 1 1 0 0 1 0 0 1 4 3 2 3 3 3 1 1 0 1 3 1 16 0 4 1 1 0 0 0 8 6

29 0 13 13 0 0 13 0 0 13 50 25 13 25 38 38 13 13 0 13 25 13 88 0 22 11 11 0 0 0 67 44

3 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 2 3 3 3 3

1,129 1,624 2,669 2,999 2,102 3,996 3,165 1,796 2,156 3,261 3,127 3,582 5,064 4,872 7,125 7,601 8,099 7,528 3,398 4,123 7,250 15,289 12,994 6,092 10,019 13,596 6,214 11,959 16,889 38,517 22,286 30,695

5 0 0 0 0 3 0 0 7 0 1 1 0 0 1 10 8 5 2 5 0 6 6 5 4 6 3 10 17 11 29 256

1 0 1 0 2 1 0 3 0 0 2 1 2 0 1 3 0 1 2 0 2 3 3 0 5 4 2 8 5 15 5 4

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4 0 0 0 3 0 0 5 0 6 9

1 1 6 2 2 5 3 2 2 5 2 4 7 3 11 3 3 4 2 2 3 5 4 4 4 5 7 18 14 16 16 15

14 7 29 35 34 55 40 23 38 31 24 39 53 27 61 78 53 41 29 53 78 128 145 73 46 105 58 187 206 245 212 317

+0.58 +0.09 +0.08 +0.36 +0.82 +0.08 +0.27 +0.84 −0.11 +0.49 +0.01 +0.58 +0.93 −0.48 +0.08 −0.11 +0.38 +0.71 +0.57 +0.71 +0.29 +0.42 +0.26 +0.42 +0.45 +0.74 +0.47 +0.36 +0.63 +0.55 +0.65 +0.41

4 2 3 2 2 1 23 11 13 10 29 20 24 19 31 28 27

0 0 0 0 1 0 1 0 0 1 0 1 0 0 0 0 0 1 0 1 2 0 1 0 1 0 1 1 0 0 0 0

6 7 8 8 8 8 8 9 8 8 8 9 9 8 8 8 9 8 8 8 8 8 9 9 9 9 9 10 10 10 9 10

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 1 1 1 1 0 0 4 0 0 12 12 11 5

(Continued)

Year

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total 1975−2017 Average all 1975–2017 Average cycle 1 (1975–1981) Average cycle 2 (1982–1988) Average cycle 3 (1989–1995) Average cycle 4 1996–2002) Average cycle 5 (2003–2010) Average cycle 6 (2011–2017)

Grade

B+ B+ B C B+ B+ B+ B B+ B− B N/A  

Domestic political management

Deliberation

Direction setting

No. of communiqué compliments

Spread (%)

No. of No. of days statements

No. of words

12 8 13 10 14 7 13 6 7 22 2 181

100 78 67 89 67 67 60 44 50 63 25 N/A

3 3 3 2 2 2 2 2 2 2 2 114

25,857 86 16,842 33 31,167 62 7,161 32 19,071 172 3,640 42 13,494 71 5,106 42 12,674 20 23,052 95 8,614 158 437,894 1,214

8 6 10 2 5 2 4 1 2 7 4 232

Decisionmaking

Development of global governance

No. of No. of Compliance No. of No. of references commitments assessed ministerials to core created values 329 296 254 44 196 81 214 141 376 342 180 4,675

+0.54 +0.46 +0.54 +0.50 +0.55 +0.55 +0.58 +0.68 +0.63 +0.49 n/a n/a

31 29 26 19 18 22 25 20 24 19  n/a 505

117

+0.51

18

4.21

30

2.65

5.40

10,183

28.23

0.71

10

2.14

2.86

2,526

1.14

30.57

C−

1.86

18

3.00

3.57

3,408

1.29

C+

1.71

20

3.00

4.00

6,446

B

3.29

21

2.86

6.71

7.13

56

2.88

10.14

54

2.00

 

Delivery

0 1 2 0 1 0 0 1 1  1 1 20

Participation

No. of No. of No. of officialmembers participating level groups countries created

No. of participating international organizations

4 4 9 1 0 1 0 0 4 1 2 102

9 6 10 0 4 1 1 0 6 5 6 75

9 9 10 10 10 10 10 9 9 9 9 375

9 15 28 9 7 4 6 0 6 7 5 146

0.45

2.37

8.72

3.40

1.74

+0.33

0.29

0.71

7.57

0.00

0.00

33.57

+0.32

0.29

1.14

8.43

0.00

0.00

4.43

56.14

+0.38

0.57

1.29

8.14

0.57

0.00

10,880

5.71

106.00

+0.45

13

0.57

3.57

9.00

0.86

1.00

10.88

23,677

65.75

237.88

+0.54

21

0.38

5.88

9.63

12.63

5.63

3.57

12,235

85.71

218.57

+0.58

21

0.67

1.14

9.43

5.00

3.29

Notes: N/A = not available. Grade: Kirton scale is A+ Extremely Strong, Striking, Standout, Historic; A Very Strong; A− Strong; B+ Significant; B Substantial; B− Solid; C Small; D Very Small; F Failure (including made things worse). Domestic political management: No. of communiqué compliments = the number of favourable references to G7/8 members by name. Spread = number of G7/8 members complimented. Deliberation: No. of days = the duration of the summit; No. of statements = number of official statements issued in the leaders’ name; No. of words = number of words contained in the official statements. Direction setting: No. of affirmations of G7/8 core values of open democracy, individual liberty and human rights contained in official documents. Decision-making: No. of commitments contained in the official documents. Delivery: Compliance: compliance with selected commitments assessed as follows: 1975–1989 assessed by George von Furstenberg and Joseph Daniels; 1990–1995 assessed by Ella Kokotsis; 1996– assessed by the G7 Research Group. No. of commitments: number of commitments assessed. 2016 is draft Final Compliance Scores only. Development of global governance: No. of ministerials created = number of institutions at the ministerial level created; No. of official-level groups created = number of institutions at the officials level created. Institutions created at or by the summit, or during the hosting year, at least in the form of having one meeting take place. Participation: No. of members = number of leaders of full members, including those representing the European Community from the start; Russia started as a ­participant in 1991 and became a full member in 1998; the G4 met in 1974 without Japan and Italy and later that year the G6 (without Canada) met. No. of participating countries = number of full members plus number of leaders from other countries. No. of participating international organizations = number of heads of international organizations.

30  John J. Kirton The decade ended with the G7’s fifth summit, held in Tokyo, Japan, in 1979, with the members reeling from a second Middle East oil shock brought by the Iranian revolution and its militant fundamentalists’ seizure of the American embassy and diplomats in Tehran. G7 leaders responded with an unprecedented program of coordinated oil import cutbacks that soon ended the oil shocks and the inflation that it had long fuelled, if at the cost of a severe recession that soon came throughout the OECD (Ikenberry 1988). They also replaced anti-globalist trade protection with new liberalization by agreeing to complete the Tokyo Round. Moreover, they initiated a new advance in the globalization of people through migration by agreeing on a plan to accept Indochinese refugees. And, above all, the G7 addressed the ultimate form of harmful globalization by pioneering an ambitious climate change regime that proved effective for the following 5 years (­ Kirton and Kokotsis 2015). Throughout this decade, the media reported, often ­approvingly, every word the leaders issued in their concluding communiqué. ­Virtually no protesters gathered on the summit site to criticize or compromise G7 leaders’ efforts to govern globalization for the good of all. A closer look at the G7 summit’s 1970s success on trade shows it was an important part of the ‘B’ grade assigned by Robert Putnam and Nicholas Bayne (1987) to the 1977 London Summit. The 1978 Bonn Summit was given an ‘A’. The G7’s trade agenda expanded in 1977 to embrace North–South trade, thus reaching out to bring the benefits of trade to poor developing countries. In 1977, the principles the leaders affirmed in their concluding communiqué emphasized the link between trade and jobs, and welfare more generally, as well as inflation. The 1980s The 1980s similarly started within the dark night of deep recession and a new Cold War but ended amidst the sunlight of strong economic growth, employment, multilateral and regional trade liberalization, and victory in the 40-year-long Cold War. The recession and new Cold War, inspired by an expanding Soviet Union, helped fuel the election of a strongly rightwing Ronald Reagan in the U.S., a strongly left-wing François Mitterrand in France and deep divisions between them in the G7 over the proper path to restore inclusive growth. Reagan’s free market approach, backed by the UK’s Margaret Thatcher, was opposed by Mitterrand’s socialist moves to regulate the economy, nationalize French banks, put members of the ­Communist Party in his cabinet and foster economic relations with the expanding Soviet Union. This approach was supported by Germany’s Helmut Schmidt and Canada’s Pierre Trudeau. After the 1980 summit in Venice, Italy maintained the momentum from Tokyo. Trudeau’s 1981 Montebello Summit emphasized development and succeeded in getting Reagan to agree to go to Cancun to conduct global negotiations with an emboldened South. However, East–West security

Advancing global openness  31 subjects soon dominated, with the Soviet gas pipeline dispute between the U.S. and Europe making Versailles in 1982, the G7’s first failed summit and Williamsburg in 1983 producing a hard-won compromise consensus on an approach to the Soviet Union. At Bonn in 1985, the G7 summit almost died due to a dispute over trade, with Mitterrand essentially threatening to leave if his partners insisted on launching a new MTN round. However, at Tokyo in 1986, they all agreed to start a new Uruguay Round and at Venice in 1986 acted against the dark side of globalization in the form of the drugs trade. At Toronto in 1988, Reagan’s last summit, they strongly welcomed the ­Canada–U.S. Free Trade Agreement (CUFTA), covering the largest bilateral trade relationship in the world, helping it take formal effect at the start of 1989. At Toronto, they also identified the concept of globalization, opening their communiqué with the words: Over the past fourteen years, the world economy and economic policy have undergone profound changes. In particular, the information technology revolution and the globalization of markets have increased economic interdependence, making it essential that governments consider fully the international dimensions of their deliberations. At Paris in 1989, they secured their long sought Cold War victory and e­ nsuing democratic revolution when Gorbachev, on July 14, sent his surrender letter on behalf of the Soviet system to the G7 leaders gathered there. The G7 also addressed new proliferating dimensions of globalization by devoting a substantial part of their communiqué to ecological concerns and creating the Financial Action Task Force to tackle transnational crime (Scherrer 2009). On trade, the G7 of the 1980s expanded its earlier success with the launch of the multilateral Uruguay Round and the conclusion of the regional CUFTA. Putnam and Bayne gave a grade of ‘C’ to Montebello in 1981, in part for creating the G7 trade ministers’ quadrilateral, and the same grade to Versailles in 1982 in part for managing East–West trade. After a half decade-­long absence, the trade agenda resumed its attention to North– South trade from 1985 to 1988. And in their principled direction setting, G7 leaders newly linked trade to development in all countries in 1983, to developing country debt in 1984 and to social justice itself in 1989. The 1990s In a reversal of the previous pattern, the 1990s began with the daylight of proliferating post–Cold War globalization and ended with the dark clouds of the Asian-turned-global financial crisis from 1997 to 1999 and major anti-­ globalization protests at the G7’s 1999 Cologne Summit and the ‘battle of Seattle’ at the WTO’s ministerial meeting there the same year. At Houston in 1990, G7 leaders memorably declared: ‘When people are free to choose, they choose freedom’. Gorbachev came to London in 1991

32  John J. Kirton to plead for economic assistance, which was given to his successor Boris Yeltsin from the democratizing, remnant Russia at Munich in 1992. Tokyo in 1993 helped successfully conclude the Uruguay Round by the time of the Naples Summit in 1994 and helped create the new, stronger WTO as successor to the GATT. Halifax in 1995 emphasized ecologically sustainable globalization and the need to reform the international institutions of the 1940s to make them meet the challenges of the approaching 21st-century world. Lyon in 1996 tackled money laundering and terrorism, building on G7 work since 1978. G7 leaders focused on crime and corruption at Denver in 1997 and at Birmingham in 1998, as Russia joined the G7 summit as a full member to make it a G8 one. Cologne in 1999 produced a new consensus on socially sustainable globalization and approved the creation of a broader G20 of finance ministers and central bank governors embracing key emerging countries and designed to make globalization work for the benefit of all (Kirton 2013). Yet from 1997 to 1999, the G7 struggled to keep emerging markets open for trade amidst the severe Asian-turned-global financial crisis and the advent of intense anti-globalization and trade protesters at the G7 summit, and physically attacking the WTO and International Monetary Fund (IMF)-World Bank ministerial meetings in 1999. On trade, the G7 multilaterally helped complete the Uruguay Round and create the WTO, regionally welcomed the 1994 North American Free Trade Agreement (NAFTA) among the U.S., Canada and Mexico, and fostered trade and investment with the proliferating opening economies in post–­ Soviet countries and emerging markets around the world. While Bayne gave Houston only a ‘D’ as trade had not yet advanced and Tokyo a ‘C+’ in part for its trade progress, the G7 Research Group awarded the G7 summits grades of ‘A+’ in 1996, ‘B+’ in 1997, ‘B−’ in 1998 and ‘A’ in 1999 on trade, exceeding that awarded these summits overall. The G7 trade agenda again expanded to embrace the environment and labour in 1999. G7 leaders linked trade to rising living standards in 1997 (with the aim of admitting Russia to the WTO that year), to sustainable global economic growth and development in 1998 and to togetherness, living standards, jobs and opportunity in 1999. The 2000s The first decade of the new millennium saw the sunny optimism at Okinawa in 2000 swiftly turn to the darkness of deadly anti-globalization protests at the G7’s Genoa Summit in 2001, assaults from global mega-terrorism on 11 September 2001 and the great American-turned-global financial crisis erupting on 15 September 2008. Yet it saw the G8 and its sister G20 summit created in 2008 soon contain these new threats from post–Cold War globalization, restore economic growth, shape socially sustainable globalization and successfully support health and the broader MDGs. At Okinawa in 2000, G7 leaders acted to bridge the digital divide to develop poor countries and support the health of their people ravaged by

Advancing global openness  33 infectious disease. At Genoa in 2001, they confronted masses of violent anti-­globalization protesters surrounding and attacking them, the resulting death of a protester, and a planned al-Qaeda terrorist attack on their summit site. They created the Global Fund to Fight AIDS, Tuberculosis and Malaria. At peaceful Kananaskis in 2002, the leaders focused on terrorism in the wake of the September 11 attacks on the U.S., created the G8 Africa Plan and endorsed the Doha Development Agenda (DDA) launched by the WTO in November 2001. At Evian in 2003 and Sea Island in 2004, they painfully overcame their divisions over the U.S.–UK-led invasion of Iraq to further support global health. At Gleneagles in 2005, amidst the deadly 7/7 terrorist attacks on London at the same time, they made major advances on debt relief, aid increases and trade support for the poorest countries in the world. At St. Petersburg in 2006, when Russia hosted its first G8 summit, Russia prioritized health and education for the first time, which further supported the UN’s MDGs launched in 2000. At Heiligendamm, Germany, in 2007 and Toyako-Hokkaido, Japan, in 2008, the greatest achievements came on climate change control. At L’Aquila, Italy, in 2009, much new money was mobilized for food security for the global poor. In trade, the G8 failed to conclude the DDA after several deadlines had passed. Yet it saw China join the WTO in 2001. As the G7 turned to support aid-for-trade and plurilateral and bilateral free trade agreements, the G7 Research Group gave its trade performance grades of ‘B’ in 2000, ‘B+’ in 2001 and ‘B+’ in 2002. Moreover, the G7 trade agenda broadened to add civil society in 2000. The 2010s The 2010s began with the dawn of recovery from the American-turned-global financial crisis of 2008–2009 and its great recession, but was soon clouded by Russia’s aggression and annexation in Ukraine in 2014, the populist pushback against massive immigration into Europe from the Middle East and Africa in 2015 and the protectionist onslaught from the UK’s 2016 decision to leave the EU and the November 2016 election of Donald Trump as the U.S. president. Creating even more diverse and diffuse challenges to globalization were the European financial crisis of 2010–2013, the increase in economic and social inequality within G7 countries and the upsurge in deadly terrorism by IS and its devotees. The G8 began with an effective response at Muskoka, Canada, in 2010, raising US$7.3 billion for maternal, newborn and child health to support two ­ eauville, of the eight MDGs that were furthest from reaching their goal. At D France, in 2011, to advance the Arab awakening, G8 leaders pledged to stop the slaughter of innocent civilians in Libya, produced the Deauville ­Partnership of massive financial and economic support for North Africa and immediately mobilized US$20 billion from multilateral financial institutions for the first step. At Camp David, the U.S., in 2012, with Russia’s Putin absent,

34  John J. Kirton leaders responded effectively to the newest instalments of the Euro-crisis, to the escalating slaughter of civilians in Syria and to food insecurity in Africa, while advancing democracy and development in post-war Afghanistan and in a reforming North Africa and Middle East. At Lough Erne, UK, in 2013, G7 leaders made progress on their priorities of trade, tax and transparency, all designed to spread the benefits of globalization. They agreed that President Bashar al-Assad must go to end the brutal Syrian civil war. As the geopolitical storm from Russia arrived, G7 leaders quickly relocated their summit from Sochi to first-time EU host Brussels in 2014 and re-affirmed the G7’s foundational mission from 1975. They confirmed ­Russia’s suspension from the G8 and the continuation of their core tradeand finance-restricting sanctions on Russia for its aggression and annexation in Ukraine. At Elmau, Germany, in 2015, the G7 promised to lift 500 million people from hunger by 2030, in direct support of the UN’s new SDGs. At Ise-Shima, Japan, in 2016, the G7 created guiding principles for women’s economic empowerment. On trade, the G7 increasingly emphasized plurilateral, regional, bilateral and sectoral free trade agreements, recognized the new trade system based on global supply changes and promised to ensure social, labour and ecological standards, and human rights throughout the chain. In 2016, it privately supported UK Prime Minister David Cameron in his campaign to convince his voters to remain in the EU. In their communiqué preamble, the leaders publicly declared: We are committed to using trade to create economic opportunities for workers, consumers and firms. We reaffirm our commitment to keep our markets open and to fight all forms of protectionism. In order to further boost free trade … We also encourage trade liberalization efforts through regional trade agreements including the Trans-Pacific Partnership, the Japan-EU Economic Partnership Agreement (EPA), the Transatlantic Trade and Investment Partnership (TTIP) and the Comprehensive Economic and Trade Agreement (CETA).

Causes of the G7’s globalization path and performance This particular path and performance of the G7’s governance of globalization amidst its periodic populist, protectionist critics was substantially driven by the six causes highlighted in the concert equality model of G7 governance (Kirton 1993). Shock-activated vulnerability The first cause were the shocks that activated the awareness of G7/8 leaders of their own and their countries’ vulnerability to globalizing forces and to

Advancing global openness  35 the anti-globalist response that they struggled to control on their own. The G7 was created to cope with six severe shocks assaulting the U.S. and its major democratic partners from 1971 to 1975: the 1971 Nixon shock that destroyed the 1944 Bretton Woods system of fixed exchange rates backed by gold and imposed a 10% surcharge on dutiable imports into the U.S., the paralysis of the Tokyo Round launched in 1972, the first oil shock and the Middle East War in October 1973, the Indian nuclear explosion in May 1975, the spread of Eurocommunism in southern Europe by 1975 and the defeat of the U.S. in its then longest war in Vietnam in 30 April 1975. Such shocks were repeated and joined by those from terrorism in 1978, oils spills and ecological and natural disasters. Their sequencing, severity and spread often spurred the G7 summit to success in the same, similar or socially constructed and connected policy fields. In the particular case of governing globalization and those attacking it, such shocks were embodied and powerfully brought home in ­geographically and temporally proximate form by the mass and, at times, violent anti-­ globalization protesters confronting the G7’s popularly and democratically elected leaders at their annual summit site (see Table 2.2). The number and public appeal of peaceful protesters representing mass publics spurred G7 leaders to emphasize socially and ecologically sustainable globalization and open trade, while violent and destructive protesters representing far fewer people did not. Thus, the surge in the number and novel tactics of peaceful protesters in 1998, 1999, 2000 and above all 2005 spurred those summits to success, while the large destructive protests at Genoa in 2001 and Evian in 2003 had the opposite effect. Multilateral organizational failure The second cause was multilateral organizational failure, as the IMF, World Bank, WTO, International Labour Organization and other bodies in the UN galaxy were recurrently unable to make globalization work inclusively and equitably for all or most. Moreover, unlike the leaders of G7 countries, the executive heads of the major multilateral organizations were never ­popularly elected to their posts, seldom had prior experience in electoral politics at home and have no intra-institutional legislative accountability or ­constraints. Their influence was based importantly on siloed, traditional expertise, which was often distrusted by mass publics, especially when it was seen to fail, as it often did (Kirton 2013: 43–44, 446). Their large taxfree salaries, and that of much of their staff, placed them in or near the top 1% of income earners and can attract additional popular resentment and distrust similar to that over the compensation of the CEOs of the world’s major private sector firms. These deep structural flaws were reinforced by the deepening failure of the WTO, created with G7 support in 1994 to enhance multilateral trade liberalization. It failed to successfully complete a round of multilateral trade

Table 2.2  G  7/8 summit demonstrators, 1998–2017 Summit

Number of protesters

Arrests

Injuries

Deaths

1975 Rambouillet 1976 San Juan 1977 London 1978 Bonn 1979 Tokyo 1980 Venice 1981 Ottawa 1982 Versailles 1983 Williamsburg 1984 London 1985 Bonn 1986 Tokyo 1987 Venice 1988 Toronto 1989 Paris 1990 Houston 1991 London 1992 Munich 1993 Tokyo 1994 Naples 1995 Halifax 1996 Lyon 1997 Denver 1998 Birmingham 1999 Cologne 2000 Okinawa 2001 Genoa 2002 Kananaskis 2003 Evian 2004 Sea Island 2005 Gleneagles 2006 St. Petersburg 2007 Heiligendamm 2008 Hokkaido 2009 L’Aquila 2010 Muskoka 2011 Deauville 2012 Camp David 2013 Lough Erne 2014 Brussels 2015 Elmau 2016 Ise-Shima 2017 Taormina

– – – – – – – – – – – – – 3,000 – – – 1,000 – – – 25,000 – 70,000 20,000–50,000 70,000 100,000–250,000 2,000–3,000 100,000 100–500 3,000 – 2,000 1,000 5,000 – ‘thousands’ – – ‘thousands’ 3,500–7,500 4,000 3,000

– – – – – – – – – – – – – – – – – – – – – – – – ‘likely none’ ‘likely none’ 56–280 ‘virtually none’ 200 – – – – – – – – – – – – – –

– – – – – – – – – – – – – – – – – – – – – – – – ‘likely none’ ‘likely none’ ‘more than 500’ ‘virtually none’ 10 – – – 2 – – – – – – – – – –

– – – – – – – – – – – – – – – – – – – – – – – – 0 0 1 0

– = numbers not reported. Source: various news sources.

– – – – – – – – – – – – – –

Advancing global openness  37 liberalization in the 23 years since it was created. At its most recent ministerial conference, held in Buenos Aires in December 2017, it failed even to produce an agreed concluding ministerial declaration and act against protectionism by endorsing standstill, rollback and fisheries subsidies phase outs (Schott 2017). Predominant equalizing capabilities The third cause was the globally collective predominance and the increasing internal equality in the relative capability of G7 members. The addition of an ever-expanding EU and a reviving Russia after 1998 reduced the G7’s global decline amidst the rapid growth of emerging powers outside. Before and after the powerful Reagan revival in the U.S. from 1981 to 1985, when both socially sensitive globalization and trade liberalization were largely absent from G7 summits, came the more persistent rise of Japan until 1990, then of Germany with East Germany re-absorbed in 1992, and of resource-rich and highly trade-oriented Canada. This gave greater weight at the G7 summits to the latter’s leaders who usually supported trade liberalization along with strong social protections and in Canada’s case welcoming immigration too. Common principles The fourth cause was the common principles of open democracy and human rights that bound G7 members together and expanded with the addition of Canada in 1976, the ever-enlarging EU in 1977 and a democratizing Russia in 1998 until 2014. These core principles, embedded in members’ national constitutions and long-standing domestic political practices, made G7 leaders responsive to their citizen’s concerns, and thus the populist, p ­ rotectionist, anti-globalization sentiments that they sometimes had. On the whole, their citizens rationally understood, with the guidance of their leaders, that their personal well-being increasingly depends on their countries’ population growth, international trade, investment and (save for Japan) immigration and ecological protection through international cooperation. Political cohesion The fifth cause was the domestic political cohesion that gave G7 leaders the political strength to make to their own publics a convincing case for globalization, especially once they had absorbed their citizens’ concerns about the dangers ungoverned globalization brought. The G7’s longest serving and more frequently re-elected leaders were three-time winners Angela Merkel, Tony Blair and Jean Chretien, all of whom believed in open trade but also in social and ecological protection and the development of poor countries. No less committed, if less politically successful, were Germany’s social democrat chancellors Helmut Schmidt and Gerhard Schroeder and

38  John J. Kirton the U.S. Democratic Party presidents Jimmy Carter for one term and Bill Clinton and Barack Obama for two terms each. The latter’s total 20 years in office came very close to offsetting the 23 years of the republican party presidents Gerald Ford, Ronald Reagan, George H. Bush, George W. Bush and Donald Trump. However, by 23 September to 7 October 2016, the dominant concerns of publics in the G7’s democratic countries showed a great divide (Economist 2016). Terrorism led in the U.S. and immigration did in the UK, whereas poverty and social inequality did in Germany and Japan, and unemployment in Italy, France and Canada. Moreover, Canada was the only G7 country where citizens felt their country was on the right track. Amidst these divisions, however, there was a broad consensus on the need to tackle some of the root causes of populism and protectionism, i.e. poverty, social inequality and jobs. Compact club participation The sixth cause was the compact club participation that allowed each leader equally to host and speak at the summit in turn, in a free, frank, informal, interactive conversation that induced all to recognize and activate their core common principles and adjust their initial positions to secure the consensus they all sought. A further bond was the G7 summit’s status as the ultimate lonely hearts’ group therapy session, as only the fellow democratic leaders of the world’s most powerful countries could understand and empathetically support what their select set of colleagues were enduring amidst their multifaceted political pressures at home. The G7 summit, unlike the newer, bigger, more diverse G20 one, was always a psychologically interpersonal, as well as a rationally instrumental, institutional club.

Culmination at the Taormina Summit, 2017 At the 43rd annual G7 summit, held in Taormina, Italy, on 26–27 May 2017, the G7 leaders’ again demonstrated their ability to answer populist, protectionist, anti-globalization pressures. It was the culmination of the first outing on the full world stage for a politically inexperienced U.S. president Donald Trump, who personally and politically believed in populist protectionism in trade, migration and multiculturalism, and in climate change denial as no previous U.S. president had (Kirton 2017b). Yet Taormina produced a substantial success, led by major advances in gender equality as a source of economic and social development, in tackling the common enemy of globalized terrorism, in supporting the SDGs and in renouncing trade protectionism, even if it largely failed on migration and climate change. ­Together, Taormina showed that G7 leaders were on track to again sustain globalization and steer it in more socially inclusive and sustainable ways (Kirton 2017c).

Advancing global openness  39 In the leaders’ core communiqué of 39 paragraphs, foreign policy took ten paragraphs (or 25% of the total); trade, five; the preamble, food security and nutrition, and innovation, skills and labour, four each; climate and energy, three; human mobility, two; and Africa, the global economy, inequality, gender equality, and health, one each. The preamble reaffirmed the mission of promoting democracy and human rights, added sustainable development and introduced culture. It proclaimed the progress that globalization had brought and recognized the need to share its benefits more widely and do more to ‘make poverty history’, end hunger, create a cleaner and safer environment and support the 2030 Agenda for Sustainable Development. On trade, the G7 leaders did surprisingly well, given the ­transatlantic ­disagreements that had prevented consensus in the lead-up ministerial meetings. Using balanced phrasing that included Trump’s core concerns, they ­affirmed their need for ‘free, fair and mutually beneficial trade and ­investment’. They promised to ‘keep our markets open and to fight protectionism’ so trade could work ‘to the benefit of everyone’. They also pledged to ­improve the WTO and improve ‘social, labor, safety, tax cooperation and ­environmental standards throughout the global economy and its supply chains’. On gender, a unifying issue, the Taormina roadmap reflected the fact that it was the first G7/8 summit where two of the leaders were women and where Canada’s Justin Trudeau placed gender equality as a core priority. On climate change and energy, a highly divisive, high-profile subject, the summit did less well, if better than many had expected. It framed the issue as one of energy security and pointed to the growth and jobs that clean technology could bring. It then noted that the U.S. was reviewing its climate policies, while all other members ‘reaffirmed[ed] their strong commitment to swiftly implement the Paris Agreement’. Moreover, despite the presence of a locally unpopular Donald Trump, Taormina was a very peaceful summit, with none of the violent protesters that had scarred Italy’s summit at Genoa in 2001 (see Table 2.2). The limited number of protesters near the summit site raised a wide range of issues, including many not on the summit agenda (Crikey 2017). But they were easily contained by the security forces at the relatively isolated summit site.

Conclusion: performance, prospects and proposals Performance and propellers Since its 1975 start, the G7 summit has confronted successive waves of anti-­ globalization and populist, protectionist pressure that has expanded from a focus on trade and finance to embrace the natural environment, immigration, transnational crime, drugs, disease and terrorism of global reach. G7 leaders have swiftly and broadly expanded their agenda in response and done so with sufficient success to quell the populist surges, to sustain and strengthen the openness and benefits that globalization brings and to

40  John J. Kirton enhance social and ecological protections that benefit all. It has done so largely due to successive shocks that activate the awareness of G7 leaders of their countries’ vulnerabilities, especially when they are surrounded at the summit site by protesters who credibly speak for mass publics demanding that globalization be governed in this way. Further, pushes come from the failure of the elitist, unelected multilateral organizations to do so, the ­g rowing capability of the more open and socially oriented if less capable countries in the G7, the common democratic principles shared by all members, the political control and continuity of socially oriented leaders and the interpersonal dynamics within the G7 as the leaders’ own cherished club. The arrival of Donald Trump at the 2017 Taormina Summit represented a new peak in the presence of an anti-globalist, populist, protectionist ­proponent at the leaders’ table. But he proved to be unwilling and unable to overturn the dynamics of the club and its traditional success in keeping socially sustainable globalization alive. Prospects How the G7 copes with anti-globalization pressures at its next few summits will do much to determine the future of the G7, global governance and even the well-being of humanity as a whole. Here the prospects are promising, even if some wonder whether the 2018 summit, on June 8–9, in ­Charlevoix, Quebec, will merely confirm that the G7 has ‘indeed become the G6+1’ ­(Patrick 2017: 3). It will be the sixth summit hosted in Canada, which has always been a passionate proponent of socially sustainable globalization and progressive trade. No G7 summit held in Canada has been plagued by violent anti-­globalization protesters around the summit site. The 2018 host, Justin Trudeau, brings 3 years of summit experience, the support of a majority government and a record of sustained action to support gender equality, inclusive economic growth, Indigenous Peoples, youth, progressive trade liberalization and open immigration. Consistent with these convictions were the five themes Trudeau publicly set for the summit on 14 December 2017. They are investing in growth that works for everyone; preparing for jobs of the future; advancing gender equality and women’s empowerment; working together on climate change, oceans and clean energy; and building a more peaceful and secure world. In the lead-up to the summit, Canada would host several G7 ministerial meetings on these themes that would mainstream a gender-based analysis and promote gender equality and women’s empowerment. This agenda was dominated by themes with which a populist, protectionist U.S. and UK could find common cause. Yet the Canadian hosts were inclined to find ways to identify and publicize their summit’s achievements by going beyond the carefully negotiated collective communiqué in which one recalcitrant member could block the bold action preferred by all the rest.

Advancing global openness  41 Canada was likely to secure substantial support from the UK, which by December 2017 had also identified eight foreign policy priorities it would take to Charlevoix and reinforce in all international forums. The first was ending modern slavery, with a target to do so by the end of 2018, doubling from the current 37 the number of endorsements for the call to action to tackle modern slavery, including trafficking and those employed in treacherous conditions etc. This reinforced Canada’s desire to address this through the gender lens in the G7 and Argentina through slavery in supply chains in the G20. The second, consistent with Canada’s priority of middle class growth and Argentina’s on the future of work, was a global economy that works for all, with an emphasis on the global trading system, growth for all, citizens’ skills in the digital economy and getting business to comply with the rules. The third was terrorism, with a likely focus on the behaviour of Facebook, Alphabet, Netflix, Google and other internet-based firms. The fourth was migration by supporting the significant work planned by the UN Global Compact for Migration, from which the U.S. had just withdrawn. The fifth UK priority was climate change, a central theme of Canada’s G7 which the UK saw as a unique moment to send a signal on the Paris A ­ greement and to rally support for India’s solar initiatives. The sixth was gender, the central theme of Canada’s presidency, with the UK sharing its expertise on economic empowerment, women and girls’ education, implementing the 2030 Agenda and the high-level panel on women’s economic empowerment. The seventh was humanitarian issues, notably famine and its long-term prevention. The eighth, on peace and security, was driving a unified broad western and not just a G7 response, on the key issues of North ­Korea, Russia, and Iran as core issues where the G7 would have a unique role. French president Emmanuel Macron will likely pursue the same path when he hosts in 2019. By December 2017, France had already identified its priorities for its summit 2 years later. Even with the G20 emerging, and the G7 thus focusing on security issues, France believed that the G7 still had a significant role to play on Africa and development. It thus wanted Africa to remain a G7 priority, along with the environment and climate change, not just in regard to the UN Framework Convention on Climate Change but to advance climate change control comprehensively. For its 2019 summit, France thus has three priorities: climate change, which all nations must fight as a main challenge for humanity; human development, through a comprehensive approach that includes education, the replenishment of the Global Partnership for Education and gender equality; and Syria, terrorism and migration, with migration rooted in underdevelopment, especially in the Middle East and North Africa region. Here France would be inspired by its contribution as host of the G7’s Deauville Summit in 2011 in creating the Deauville Partnership. At the start of the Arab Spring in Tunisia, France felt the G7 needed collectively to support the change and to also involve the Gulf countries, IMF and World Bank to put a comprehensive policy in place.

42  John J. Kirton The hard test for the G7’s anti-globalization governance will come only in 2020 when Trump is scheduled to host and thus lead in setting the initial summit theme, priorities and approach. A second hard test could come in 2021 when the host is the UK that plans to have left the EU by then. Yet by the time Trump hosts (should he remain in office), he is likely to be constrained by his low domestic political control. As 2017 ended, Trump’s public opinion approval ratings were at historic lows for any U.S. president 1 year after his election. Moreover, polls showed that the U.S. ­public disagreed with his views on climate change and NAFTA, favouring instead the internationally cooperative approach of his Republican and ­Democratic Party predecessors. The mid-term elections in November 2018 could see Trump’s ­Republican Party lose control of one or both chambers of ­Congress. ­Additional constraints could come from the Supreme Court, which has already stopped his initiative to impose a blanket ‘Muslim ban’ and ongoing investigations into his and his senior officials’ relationship with Russia during the presidential election campaign. Moreover, the U.S. could by then be assaulted even more seriously by extreme weather events from climate change, from hurricanes assaulting its coastal cities, fires destroying its ­r ural vineyards and urban homes and drought devastating the agricultural states on which Trump’s domestic political base rests. With his continuing distrust of multilateral organizations, Trump is likely to turn towards the G7 to solve the problems that a vulnerable U.S. will face in the months before its presidential and congressional elections in 2020. Proposals In order to strengthen the success of these forthcoming G7 summits in countering the populist, protectionist pressures assaulting globally open trade, migration and climate change control, three proposals stand out from the analysis above. First, the G7 should bring the voices of the people much more integrally into the summit planning and preparatory process throughout the year. The G7 should move to adopt and expand the large and growing set of formal and informal engagement groups that the G20 summit now has, led by the Business 20, Labour 20, Youth 20, Civil 20, Think 20, Women’s 20, Science 20 and Young Entrepreneurs Alliance. Second, the G7 should develop its nascent body of parliamentarians into a major partner. In addition to the activities of other engagement groups, its members and all their legislative colleagues could regularly consult with their voters at home to learn what they want the G7 to do for them and tell them in turn what the G7 has done and is trying to do for them in their daily lives. Third, the G7 should support independent, professional efforts, with civil society input, to monitor members’ compliance with their leaders’ G7 summit commitments and add credible recommendations to correct compliance

Advancing global openness  43 shortcomings and an extended analysis of whether fully complied-with commitments are actually achieving the intended, desired and needed results (Kirton and Larionova 2018).

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44  John J. Kirton Kirton, John J., Joseph Daniels, and Andreas Freytag, eds. 2001. Guiding Global Order: G8 Governance in the twenty-first century. Aldershot: Ashgate. Kirton, John J., and George von Furstenberg, eds. 2001. New Directions in Global Economic Governance: Managing globalisation in the twenty-first century. ­Aldershot: Ashgate. Kirton, John J., and Ella Kokotsis. 2015. The Global Governance of Climate Change: G7, G20 and UN Leadership. Farnham: Ashgate. Kirton, John J., and Marina Larionova, eds. 2018. Accountability for Effectiveness in Global Governance. London: Routledge. Krugman, Paul. 2017. “Trump’s Energy, Low and Dirty.” The New York Times, May 29, 2017. www.nytimes.com/2017/05/29/opinion/trump-g-7-summit-energy.html. Larionova, Marina, and John J. Kirton, eds. 2015. The G8-G20 Relationship in Global Governance. Franham: Ashgate. Patrick, Stewart. 2017. “Desperately Seeking Sherpas: Ten Global Summits to Watch in 2018.” Expert Brief, Council on Foreign Relations. December 20, 2017. www.cfr. org/expert-brief/desperately-seeking-sherpas-ten-global-summits-watch-2018. Putnam, Robert, and Nicholas Bayne. 1984. Hanging Together: Cooperation and Conflict in the Seven-Power Summit. 1st ed. Cambridge MA: Harvard University Press. Putnam, Robert D., and Nicholas Bayne. 1987. Hanging Together: Cooperation and Conflict in the Seven-Power Summits, rev. ed. Cambridge MA: Harvard U ­ niversity Press. Rahr, Alexander. 2017. “G7 ‘Nearly Ceased to Exist,’ Held its’ ‘Most Ill-fated Summit’.” Sputnik News Service, May 29, 2017. www.infowars.com/g7-nearly-ceasedto-exist-held-its-most-ill-fated-summit/. Revesz, Rachael. 2017. “Donald Trump Acted Like A ‘Drunk Tourist’ on Europe Trip that Led Angela Merkel to Proclaim End of US Alliance.” Independent ­O nline, May 29, 2017. www.independent.co.uk/news/donald-trump-trip-abroadsaudi-arabia-europe-nato-climate-change-human-rights-handshakes-a7761036. html. Scherrer, Amandine. 2009. G8 Against Transnational Organized Crime. Farnham: Ashgate, 2009. Schott, Jeffrey. 2017. “Troubling Complacency Among the World’s Trade Ministers.” ­ conomics, Trade and Investment Policy Watch, Peterson Institute for International E ­December 19, 2017. https://piie.com/blogs/trade-investment-policy-watch/troublingcomplacency-among-worlds-trade-ministers. Yomiuri Shimbun. 2017. “G7 must unite to avoid isolationist trap: The ­Yomiuri ­Shimbun.” The Straits Times May 30, 2017. www.straitstimes.com/asia/east-asia/g-7must-unite-to-avoid-isolationist-trap-the-yomiuri-shimbun. The Japan News. 2017. “Abe Acts as Bridge between U.S., Europe at G-7 Summit,” May 29, 2017. http://annx.asianews.network/content/abe-acts-bridge-between-useurope-g-7-summit-46961.

3 The master frames of globalization and the G7 Beyond the left and right cleavage Raffaele Marchetti

The transformation of the political cleavage: from left-right to globalist-localist Sticking to a traditional paradigm of left and right politics, we would not be able to provide an account of the major political phenomena of the last decades. Predominant in today’s international politics is the positioning vis-à-vis the issue of globalization. It is with reference to the globalizing processes that we need to interpret the political transformations occurring both at the national and international levels. The G7, as a place that has played a major role in orienting macroeconomic and political trends at the international level, is part and parcel of this process. The G7 can be better understood if put into a wider interpretative framework which is centred in the dichotomy pro- vs. anti-globalization. With the financial crisis came a political shift. As a consequence of the economic crisis, a number of national political systems have changed dramatically. The popular support for traditional parties has sharply declined. New populist parties have boomed. Major economic policies have been ‘agreed externally’ within European and international institutions. Trans-ideological coalition governments have been created, with both conservative and progressive parties sharing power. While at a first sight such changes may appear contingent, I will argue that they ultimately reveal a fundamental transformation of politics in the age of globalization. In the era of globalization, we face a phenomenon that is hard to explain in its complexity and novelty. The crisis is revealing a new political constellation that cannot be understood with the old categories that helped us to give a meaning to our experience of the 20th century. The article suggests, instead, that the post-crisis events reveal a fundamental transformation of politics in the age of globalization. A transformation that is deep and here to stay for some time, which concerns the main political cleavages surrounding globalization. While in the past, the dichotomy was between left and right (Bobbio 1994; reprinted 1996), today the key tension is between supranational integration and national preservation in the economic, social and political realms. In other words, between global democracy and rooted democracy. It is by examining issues such as market

46  Raffaele Marchetti integration, delegation of sovereignty, participation to regional organizations, but also the acceptance of ‘universal’ standards, that we can better understand the political divisions of today. With this, I am not suggesting that the traditional principles associated with the right-wing or left-wing understanding of politics are of no value or of no use anymore. Normatively, they still play an important function in guiding the assessment of many political decisions (e.g., equality vs. individual freedom from state intervention). However, it seems that these ideological points of reference are of little use when we need to decipher the ­fundamental policy decisions taken by national or international actors. What really matters there is the attitude towards globalization, which does not coincide with the positioning of political parties along the left-right continuum. In today’s politics, the first thing is to settle the ultimate ­framework, i.e. to decide where to stand in relation to the issue of globalization. Once this ­ ormative is defined, the realm of traditional left vs. right politics emerges. N disputes, I submit, come only later in the discussion. In the last 30 years, in the West and later on in the rest of the world, we have been living in a system where the fundamental decisions in favour of globalization have been taken for granted. The G7 has been a pivotal centre of reflection and decision-making oriented in such a direction. Such political direction has not been really discussed either in national or regional parliaments, or in public debates. It has been simply taken as given. The consensus in the establishment has been so widespread that the old Thatcherite say of TINA (there is no alternative) by now seems almost fully realized. But with the 2008 economic crisis, such mainstream position is increasingly questioned. And this dispute is reverberating significantly also within the G7 context with an emerging cleavage pro and against globalization that is beginning to shape the political negotiations in this format. The debates on trade, environment and the wider issue of the relevant of international organizations are all ultimately referring to a dispute on the value and viability of a globalist approach that is increasingly questioned by key leaders of the G7, beginning with the American president Trump. This chapter intends to shed light on the transforming conceptual landscape ­ ational that draws the boundaries of the current political debate at both the n ­ ebate on and international levels. It does so by focusing on the normative d globalization and by examining the principal master frames that have been developed in the last decades with reference to global politics. It first presents a general understanding of the nature and role played by global master frames in today’s global politics. It then identifies four master frames that delimit the boundaries of the current ideational debate on global politics, especially after the financial crisis. Two approaches are pro-globalization (neo-liberalism and cosmopolitanism) and two are against globalization ­(localism and civilizationism). It concludes by suggesting that this set of master frame helps us in understanding the current political scenario and the potential transformation that may occur within the G7 in the forthcoming years.

The master frames of globalization and the G7  47

The globalization debate One of the most heated debates on the political agenda concerns the s­ ocial consequences and the political control of what is usually referred to as globalization. There can be no doubt that the world’s ethical consciousness has been altered by the global transformations of the last decades. In this ­process, characterized by the intensification of interaction and by the deepening enmeshment of local and global, economic concerns have undoubtedly taken the lead, but politics, law and culture are also experiencing radical mutations that increasingly throw into doubt the legitimacy of traditional codes of conduct. From the assemblies of international institutions to national parliaments, from private sector meetings to civil society forums, the theme of the effects of the increased global interconnectedness on the lives of citizens occupies the centre of public discussion. The focus of this debate on globalization is the inadequacy of the current institutional framework and its normative bases for a full development of the political sphere at the global level. Traditional political canons, anchored in the nation state and its domestic jurisdiction, are increasingly perceived as insufficient or indeed self-defeating, in a world where socio-economic interaction is, to a significant degree, interdependent. Unstable financial markets, environmental crises and unregulated migratory flows offer just a few examples of phenomena that all too clearly remind us of the heavy interdependence of the contemporary international system and of its political deprivation. These intense processes of global transformation functionally require increased transnational cooperation, and yet pose a continuous challenge to the effectiveness and legitimacy of ‘traditional’ political life. Acknowledging the limits of this political tension, alternative projects of global politics have been developed and mooted publicly in recent decades. Their common denominator consists of the attempt to go beyond the centrality of the sovereign state towards forms of political participation that allow for new subjects to ‘get into transnational politics’. These new would-be or quasi-global political actors are part of the broad category of non-state actors, which includes international non-governmental organizations, transnational corporations, networks and campaigns of civil ­society organizations and faith-based groups, transnational social movements, transnational political parties, international private bodies and ­individuals. Despite minor institutional experiments, most of these actors share a common characteristic, which is of effectively being excluded from international decision-making mechanisms, while being more and more active on the global stage. International exclusion constitutes the critical target of most of the alternative projects of global politics that occupy the centre of the public debate on globalization. Underpinning this debate on the political deficits of the global system are a number of ideological readings of globalization and global political phenomena that can be considered as forms of archetypes or master frames of global

48  Raffaele Marchetti politics. These master frames can be considered as ‘meta-tanks’ or cultural resources from which political actors draw their ideas and principles in ­order to formulate their political references for action (Snow and Benford 2000: 58). Political actors actively deploy global master frames to construct their contentious political references in their politics of norm change (McAdam, ­McCarthy and Zald 1996). What distinguishes master frames from political projects is precisely their detachment from any s­ pecific political actor or ­action (content orientation rather than action orientation). In opposition to the hybrid characteristics of political projects, a master frame remains ‘uncontaminated’, more static and clearly distinguishable from other master frames. Historically speaking, the first master frame with a global scope tended to have a rather negative outlook. In the 1970s, among the very widespread negative master frames was the anti-Americanism master frame, but also that of anti-colonialism. Earlier on, the master frame of anti-Nazism was dominant. In more positive terms, the master frame of human rights also played a crucial role for many decades. We can call these first-generation global ­master frames. They were the first and the less articulated master frames. With time, some of them lost their political centrality (the anti-­Nazism ­ aster frame), while some flowed into other more sophisticated global m frames. Anti-Americanism often turned into localism or ­civilizationism; anti-colonialism partly disappeared and partly flowed into civilizationism; the master frame of human rights was further developed within the global master frames of cosmopolitanism but also to some extent within that of localism. In order to understand better the difference between first and second generation global master frames, we now need to move to the current debate on the master frames of global politics.

Global politics and its master frames A typical phenomenon of any transition process occurring at the international level is precisely the sense of instability generated by the emergence of un-institutionalized actors and new legitimacy claims (previously unheard) in the public domain. Within this context of new political agency, an unprecedented global public domain consolidates in which old, state-­c entred visions of international affairs mix with new non-state-centred ­v isions of global politics, producing a complex map of ideological positions. The global public domain remains, thus, a central space where new dimensions and new applications of global legitimacy are developed and advanced in contrast to current interpretations. This does not necessarily entail r­ eformist or indeed revolutionary transformations, but the mere possibility of starting a dynamic of norms change in international politics makes this global public arena and its ideal content extremely important for current global politics (Clark 2007; Finnemore and Sikkink 1998). It is to this global public discourse and to its components that we need to look in order to understand the future, long-term transformation of global politics.

The master frames of globalization and the G7  49 In this under-explored arena of discussion and contestation over the l­egitimate global social purposes, a number of distinct political positions can be identified. Few scholars have attempted such classification. Bond identifies five principal positions: specifically, global justice ­movements, third world nationalism, post-Washington consensus, Washington ­consensus and resurgent right-wing populism (Bond 2004: 20–21). Held and McGrew a­ cknowledge six positions: radicalism, statism/­protectionism, global ­transformation, ­institutional reformer, liberal internationalism and neoliberalism (Held and McGrew 2002: 99). Pianta distinguishes three ­projects that go by the names of neoliberal globalization, globalization of rights and responsibilities and globalization from below (Pianta 2001). A ­ guiton discerns three groups: radical internationalist (beyond state and capitalism), nationalist (south) and neoreformist (global governance) (Aguiton 2001). These categorizations ­provide a useful first orientation in the debate, nonetheless they are not completely satisfactory for at least three reasons: (1) they provide only a limited range of alternatives (Aguiton 2001; Held and McGrew 2002; Pianta 2001); (2) they fail to clearly distinguish between conventional (state-based) and the new non-conventional models (Aguiton 2001; Bond 2004; Held and McGrew 2002); and more importantly, (3) they fail to provide a valid method of politically interpreting these categories in the context of globalization. Building on the previous discussion and expanding the perspective to ­include other marginalized master frames of non-state actors, four key ­interpretations of the notion of world polity can be identified as ­delimiting the range of non-conventional ideal alternatives available to the global p ­ olitical debate (see Table 3.1): (1) the vision of world capitalism as ­associated with a global free market and private economic actors; (2) the project for the democratization of international institutions as formulated in the c­ osmopolitan model with reference to individuals and supra-national i­ nstitutions; (3) the radical vision held by the vast majority of social ­movements in terms of alter-globalism and that of ethnic localism; and finally, (4) the discourse on the dialogue or clash of civilizations which refers to macro-­regional actors, often defined in religious terms (Marchetti 2009, 2016).

Neo-liberalism The central point of normative reference in the debate on global politics is represented by the neo-liberal model, which has been dominant in the public debate and in institutional policies in the last 30 years. The master frame of neo-liberalism is centred on the primacy of the economic bond. The model of neo-liberalism makes primary reference to private economic actors ­(entrepreneurs, firms, business networks and consumers) as key agents in the political system. Accordingly, political power is interpreted as being managed especially by entrepreneurs grouped in transnational élite networks (and secondarily by consumers). Powerful firms are seen as key players in a universal political system that is intended as homogeneous and

50  Raffaele Marchetti Table 3.1  Main characteristics of global master frame Cosmopolitanism Localism

Civilizationism

Neo-liberalism

Political power

Bottom up by individuals

Bottom up by civic groups

Top down by cultural élites

Reading of globalization Human bond Agency

Reformist

Radical antagonism Social Collective (grassroots groups)

Ontology

Universalism; homogeneity Globalism; delegated participation; sameness; hierarchy; institutional fairness Institutions (formal)

Conservative antagonism Cultural-religious Collective (civilisations and cultural élites) Pluralism; Pluralism; heterogeneity heterogeneity Place-basedness; Culturebasedness; direct elites guidance; participation; diversity; diversity; respect; autonomy; Goodwill and solidarity non-violence Society Elites (substantive) (substantive)

Top down (and bottom up) by economic actors Supportive

Supranational integration of individuals

Local groups, transnational networks

Political principles

Responsibility for public goods Institutional project

Political Individual (citizens)

Macroregionalism

Economic Individual/ Collective (firms and consumers) Universalism; homogeneity Globalism; technocracy; sameness; freedom; competition

None (formal)

Global self-regulation

minimal, as a sort of global invisible hand. Public institutions are seen as universal tools allowing for a fair political life, beyond the limitations of a state-based system. Within the political and economic context of globalization, neo-liberalism offers the clearest project in support of a libertarian globalization. Neo-liberalism is a master frame of global politics based on a number of distinct principles, including globalism, technocracy, universalism, individual freedom and competition. Globalism recognizes the moral and political imperative of having a world-view that encompasses the entire humanity, ­towards forms of increasingly deeper integration within a single world system, beyond suboptimal state jurisdictions (Ohmae 1999). The principle of technocracy grants authority upon expertise and delegates apolitical experts to manage in a functional way global interaction (Barnett and Finnemore 2004). Sameness holds that ultimate features of human being are constant, thus universal values apply to each individual worldwide (Buchanan 1999, part 5). The value of freedom affirms the ultimate and non-negotiable value on personal autonomy, intended as entrepreneurial capacity to individual success and economic

The master frames of globalization and the G7  51 development (Nozick 1974; Rand 1961). Competition informs a world in which free individuals are moved by the search for economic success, thus unintentionally pushed towards collective progress and technological innovation by the constant conflict over scarce resources (Becker 1976; Rothbard 1982). Neo-liberalism advocates a vision of global politics that is minimal and self-managed by individuals and economic actors. Individuals are free to act as they think it is best both as consumers (consumer sovereignty) and as entrepreneurs (capitalist freedom). Political institutions are thought to be necessary because of the imperfection of the market, and in any case, they are intended minimally á la laissez-faire. Vast parts of what is now considered as competence of political institutions (at both the state and intergovernmental levels) should, thus, be left to the self-regulation of society or to the technical management of monofunctional organizations of global governance. Global business community (Van der Pijl 1998) and global civil society (as composed by individuals rather than groups) would self-­ organize international affairs for the best (Sally 2001). A full development of a deregulated globalization is pursued, in which there is complete free trade of goods, free communication of information and free movement of people. Such kind of globalization is seen as the most adequate environment for economic growth and for the spread of democracy beyond the limits of ­nationalistic policies (Bhagwati 2004). Replacing the model of embedded liberalism – a combination of free trade and national political systems (Ruggie 1983) – the model of neo-­ liberalism gathered momentum as a rapidly growing alternative in the late 1970s and became hegemonic in the 1980s and 1990s, under the label of the W ­ ashington Consensus. Within the rising tide of globalization, two main trends marked the new paradigm: a strong emphasis on privatization (as opposed to ­welfarism) and on flexibility (as opposed to Taylorism). ­Market fundamentalism, liberalization, deregulation, and budget austerity were also prominent. The teachings of classical and contemporary economists, and the political direction of Margaret Thatcher and Ronald Reagan, provided an ­i mportant practical and theoretical framework for this paradigm change. This new model of international affairs was soon adopted, though gradually, by major international institutions, including the World Bank, the International Monetary Fund and the GATT rounds/World Trade ­O rganization. Finally, the creation of the World Economic Forum in Davos served as a non-­c onventional reference point for this libertarian tendency that is still intensely characterizing current international political–­e conomic arrangements (Porter, Sachs, Warner, and et al. 2000). In terms of institutional design, the implementation of neo-­liberalism has been closely connected with the diffusion of global governance ­mechanisms. Global transformations have provoked a rising need for broader and deeper international cooperation, which has eventually led to the e­ stablishment of new monofunctional institutions and networks. As a ­consequence, the ­international system is arguably changing into polyarchy, a system

52  Raffaele Marchetti composed of diverse authorities, often on unequal formal standing, such as states, sub-­national groups and transnational special interests and communities, ­including both private and public bodies. A continuously growing net of ­political norms and legal rule-making with a low degree of democracy have increasingly characterized the institutional side of contemporary international society, eroding the legitimacy of both the state and classic international laws. The mushrooming of intergovernmental (e.g., the G7/8 meetings) and (semi) private agencies (e.g., the Internet Corporation for Assigned Names and Numbers (ICANN) or the Society for Worldwide ­Interbank ­Financial Telecommunication (SWIFT)) has put under pressure, if not ­supplanted, the traditional United Nations (UN)-centred international system, creating alternative mechanisms of global governance. Within this innovative institutional framework, transnational corporations (TNCs) are often interpreted as catalysts to a borderless world, acting at times unintentionally as functional actors for global integration (Barnet and ­Cavanagh 1994). The model of neo-liberalism, as in relation to the expansion of globalization, has doubtlessly been the most discussed in the recent decades. This brief presentation will, thus, suffice here and will allow more space for the three remaining models which have received comparatively less attention in the public discussion, and yet constitute highly significant points of reference for alternative projects of global politics. They are the models of cosmopolitanism, localism and civilizationism.

Cosmopolitanism The master frame of cosmopolitanism is centred on the primacy of the political bond. While acknowledging the relevance of the other traditional bonds between human beings, cosmopolitanism recognizes the predominance of the political and civic dimensions of human life. The model makes primary reference to individuals as key actors in the political system. Accordingly, political power is interpreted as originated by citizens and managed in a global, multi-layered way. Public institutions are seen as universal tools to allow for a fair political life, beyond the limitations of a state-based system. Within the political and economic context of globalization, characterized by a high degree of political exclusion, cosmopolitanism offers a ­reformist project based on social-democratic and liberal values, which aims to democratize the system of globalization without altering its fundamentals. Cosmopolitanism is a theory of justice according to which the scope (not only the form) of justice is taken to be universal, as no ­discrimination is justified when considering the ultimate entitlement of every citizen to ­control his or her own destiny (Caney 2004). Individuals are entitled to rights (and ­allocated duties) that have an ultimately universalistic nature, i.e. they are transcultural and valid in any political and social context, ­because ­individuals are considered to be ultimately world citizens. ­Humanity is, thus, ­considered as a single ethical community – cosmopolis  (cosmos:  universe; polis: city),

The master frames of globalization and the G7  53 or as belonging to a single polity. Against group-based theories such as c­ ommunitarianism and nationalism, which typically recognize the political priority (at times even absolute) of a discrete community, cosmopolitanism holds that a proper account of the moral-­political ­p ersonality cannot but be universalistic and all-inclusive, and that all individuals thus have an equal entitlement to political recognition. This means that the coexistence of global and national/local principles of political justice is possible, provided a global top-down ordering is established, i.e. national ­jurisdictions are drawn by an overarching authority and national boundaries remain secondary when issues of global justice arise. Cosmopolitanism is a master frame of global politics based on a number of distinct principles including globalism, universalism, participation, and institutional proceduralism. Globalism affirms the necessity of having an all-inclusive view that encompasses all of humanity. A politically driven globalization provides the clearest embodiment of this principle, according to which traditional demarcations such as state frontiers or national passports becomes secondary (Barry 1991; reprinted in 2005). Delegated participation maintains that individuals have a political right to take part in public life in all spheres that affect them; they are thus entitled to transnational citizenship (Kuper 2004). Sameness implies that fundamental characteristics of human being do not vary according to country of birth, thus universal values apply to each individual world-wide (Caney 2004). Hierarchy requires that the system is ordered to accommodate pluralism in a fair manner. Flowing from a logic of functional integration, the political system, which is composed by different domains of action, needs to be organized in such a way as to allow centralization and decentralization at the same time (Pogge 1992). Finally, institutional fairness holds that political life should be shaped according to a formal rather than substantial principle of justice. Public decisions on justice need to be elaborated in the appropriate institutional channels, rather than through the direct appeal to substantive references, be they religious, traditional or ethnic (Boli and Thomas 1997). According to the model of cosmopolitanism, politics focuses on the macro-­level, for it aims to correct the current system of international ­exclusion through an institutional reform from above. Contemporary institutional arrangements are to be criticized for their incapacity to ­g uarantee democratic congruence between decision-makers and decision-takers. ­Consequently, political contestation of most institutions has to be carried out with the intent of revising their internal structure and opening up new channels of representation (Held 1995). Strengthened multilateralism in the short-term and federalism in the long term, constitute the most promising institutional options for a world in which individuals would retain their status of democratic and free choice-makers (Archibugi 2008; Gould 2004; Marchetti 2008). Cosmopolitanism is as old as classic Greek philosophy but gained new ­recognition in the last three decades. Its emergence began in the late

54  Raffaele Marchetti seventies, with the debate on transnational justice and the Vietnam War. From that event, the public discussion on international ethics grew ­considerably (Singer 1972), up to the point of becoming an established perspective in international studies (Archibugi, Held, and Köhler 1998). Three dimensions or phases of contemporary cosmopolitan thinking can be identified: the original ethical phase which originated in the 1970s, the institutional moment which consolidated in the 1990s, and finally the social segment from 2000 onwards. However, the influence of cosmopolitanism is nowadays expanding beyond the limited academic circles into the realm of global politics. Among CSOs, many organizations implicitly or explicitly adopt a ­cosmopolitan perspective (Yanacopulos and Smith 2008). Particularly NGOs working in the field of human rights, democracy promotion, and development, deploy a clearly universalistic approach in their political stance. In this regard, this occurs primarily in reference to a number of components of the UN system that are seen as forerunners of the future emancipation of humanity. A typical application of the theory of cosmopolitanism can arguably be found in the United Nations Convention Relating to the Status of Refugees (1951), according to which asylum is granted to fleeing individuals as citizens of the world (Hassner 1998). Despite drawing a cosmopolitan status only by contrast, the Convention nevertheless identifies the refugee as a person with universal claims of assistance, i.e. with ­cosmopolitan status (Article 1). Beyond the specific Refugee Convention, other components of the UN system have been interpreted cosmopolitically (Bienen, ­Rittberger and Wagner 1998; Cronin 2002; Hayden 2005; Taylor 1999). In particular, reference is usually also made to the environmental ­domain, with the ­Commission on Global Governance (1995) and the United Nations ­Framework Convention on Climate Change, more specifically the Kyoto Protocol. Another significant reference is the International Criminal Court with its ‘quasi-universal jurisdiction’, as well as to the new paradigm of the Responsibility to Protect which would support the case for humanitarian intervention regardless of state sovereign prerogatives (Arbour 2008; United Nations 2004). Among other international organizations adopting a number of cosmopolitan tenets is the United Nations Educational, Scientific and ­Cultural Organization (UNESCO), which has been holding for a long time the vision of global humanism that overlaps in several aspects with cosmopolitanism. Scientific humanism – the main philosophical framework contributing to the creation of UNESCO – has influenced both UNESCO’s self-­understanding and its activities such as ‘The Universal Ethics Project’ (Kim 1999). ­Scientific humanism is a philosophical vision that couples the advance of scientific knowledge with the diffusion of a common philosophical framework. Key to this is the promotion of a universal system of education to peace, which would foster the emergence of a global community based on science, humanism and human rights (UNESCO 1994). Single states have

The master frames of globalization and the G7  55 also advocated the idea of a world public authority. Recently, the Vatican called for the creation of such kind of institution as a response to the economic crisis and to promote the world public good (Pontifical Council for Justice and Peace 2011). The European Union (EU) is also often associated with the master frame of cosmopolitanism. The European Parliament is at times considered as the most advanced prototype of a transnational form of parallel political representation and governmental state representation (Cabrera 2005). ­Similarly, the (would-be/former) ‘European Constitution’ of the EU and the European Court of Human Rights (ECtHR) of the Council of E ­ urope are considered forms of cosmopolitanism thanks to their universal ­jurisdictions, though with a regional scope (Bellamy and Castiglione 1998; Eleftheriadis 2001; Eriksen 2006). Moreover, the foreign policy of the EU is interpreted normatively in a way that overlaps with a number of cosmopolitan tenets. ­Beginning from Duchêne’s argument on Europe as a civilian power in the 1970s, to the vision of Europe as normative power, and, finally, the most recent paradigm of Europe as an ethical power, the EU’s foreign policy has frequently been associated with a universalistic/cosmopolitan paradigm based on human rights, democracy and rule of law (Sjursen 2006: 249). As recently as in May 2011, the European Parliament urged the EU Council to put the UN Parliamentary Assembly on UN’s agenda (European Parliament 2011).

Localism The master frame of localism is centred on the primacy of the social bond. While acknowledging the relevance of the other traditional bonds between human beings (i.e., political, economic and cultural), localism recognizes the predominance of the social aspect of human life. The model makes reference to grassroots organizations (e.g., civil society organizations, social movements, transnational social networks) as key actors in the political system. Accordingly, political power is interpreted as being managed through a rich network of local groups that preserves pluralism and heterogeneity. Within the political and economic context of globalization, characterized by a high degree of political and economic exclusion, localism offers the clearest radical alternative to the current global transformations. The model has two main variants which, despite sharing a number of ­normative bases, diverge starkly in political terms. On the left side of the political spectrum is the civic variant of alter-globalism. On the right side is the ethnic variant of ethnicism. Despite being on the opposite extremes of the political spectrum and having very different political natures, these two variants occupy the same conceptual box in the taxonomy I present. A crucial point of divergence between alter-globalism and ethnicism resides precisely on the relationship with traditional values. While alter-globalism tends to have a more reformist attitude towards them, in the name of a never-ending process of ‘archaeological’ reinterpretation of traditions, ethnicism tends

56  Raffaele Marchetti to be more reactionary, valuing rather the correct and pure reading of core traditional principles, often with an historically revisionist agenda. For alter-­globalism, for instance, the traditional side of communities is important, but this does not mean falling back on a blind acceptance of customs. Cosmopolitan thinking developed a problematic denigration of traditions, customs and all that is related to local conservatism, including ethnicity and religion. Localism, conversely, triggers a new understanding of the social. Pregiven traditions are a fundamental social bond, although they are not the only binding elements. Political visions remain the key component for reforming actual societies towards more democratic systems, but they can only work if they are embedded in and engage critically with local traditions. Accordingly, the democratization process cannot be imposed from above (and a fortiori cannot be coercively imported), but it has to grow out of the Lebenswelt (lifeworld) – it has to empower individuals within traditions, not against them. A political framework built from below would serve as a facilitator of egalitarian and reciprocal encounters. It would provide the necessary basis for a potential reciprocal enrichment, rather than for a homogenizing process. Only by beginning from the local can transnational solidarity be built through the formation of transnational and overlapping communities. Contrary to this, ethnicism draws from those very ethnic and religious sources, in order to preserve continuity, thereby including also social, economic and gender hierarchies. Also, for ethnicism, no political model can be imposed from outside but can only be developed within the resources available in a specific political community (Caiani, Della Porta and Wagemann 2012). The ideal here consists in a genuine interpretation of traditional values through a genuine application of a ‘law and order’ principle. Moreover, this does not necessarily entail any thick trans-communal solidaristic ties beyond the communitarian context, despite thin political networks might indeed be envisaged (Bob 2012). In sum, localism can be understood as a model structured around three paramount principles: place-basedness, autonomy and diversity. In addition to these, two further principles that characterized the specific alter-globalist sub-perspective should be considered: participation and thick solidarity. Place-basedness plays a central role in defining the models of localism, as opposed to mainstream interpretations of globalization. Contrary to the universalizing perspective that regards the local as provincial and regressive, this principle maintains the importance of localism as an unavoidable and critical resource for social and political life (Dirlik and Prazniak 2001; ­Gibson and Graham 2006; Osterweil 2005). Autonomy asserts the legitimacy of communal authority. Highlighting hedonistic pleasures, productivity and rights of communities, local sovereignty remains grounded on a deep-seated conception of politics that rejects a distant authority. Self-­determination is claimed to be able to offer sound solutions to social requirements through a revolution of everyday life, where social aims are focused on taking ­advantage of cultural heritage and traditions, rather than seizing power

The master frames of globalization and the G7  57 (Amin 1985; Hines 2000; Starr and Adams 2003). Diversity rejects the homogenizing process of globalization that would create a single societal model in which individuals would be deprived of their cultural specificity and reduced to anonymous consumers. The image envisaged here is thus not a single project, but rather a plurality of cultural projects, a movement of movements, ‘a world in which many worlds fit’, as the Zapatistas would say (de Sousa Santos 2005). Or a world of peoples, as many right-wing movements would argue. To these three principles, the sub-model of alter-globalism adds participation and solidarity. Direct participation as non-hierarchical and horizontal public engagement constitutes a major element of the model of alter-globalism. Here the critical target consists in all those indirect forms of political representation accused of eroding the political trust between the elected and the electors, or, in the most radical interpretation, of hiding the deception of the ruling class and the rest. Contrary to this supposed elitist view, a system of democratic participation is reasserted by this model in which active engagement of the entire citizenry is expected at all levels, and genuinely collective decision-making processes thus implemented. In this new conception of politics, public institutions are then seen more as facilitators of self-organized open spaces from below, rather than as traditional economic and political leadership from above (Fung and Wright 2003; Holloway 2000; Mouffe 1993; Polletta 2002). Solidarity, finally, represents a further key principle for the model of alter-globalism, as it stresses the importance of transnational collaboration in overcoming local political difficulties. Key factor underpinning the possibility of solidarity is the development of a new interpretation of sociopolitical problems from a system perspective, thus requiring collective action. In opposition to the neo-liberal logic of individual atomization, local groups would consequently feel they are not alone in their effort and, if acting together, they would be able to impact on their own lives (Brecher, Costell and Smith 2000; Smith, Chatfield and Pagnucco 1997). According to the model of localism, politics is not conceived primarily as impact on political institutions or as acquisition of power. It consists rather in a project focusing on the micro level, for it aims to change society and economy through grassroots processes. In a sense, thus, this kind of politics is not global by definition. And yet, if the perspective is moved one step forward, it is possible to detect a wider strategy that starting from below does not preclude a broader change in global relationships. This strategy from below challenges traditional top-down and institutional political paradigms. In opposition to mainstream politics, proponents of this position argue that such a grassroots perspective remains the most effective strategy for impacting on the political system at large and thus on society. The first step towards the implementation of the localist political project consists in fierce opposition to the existing institutional arrangements of global governance. The most immediate political objective of actors espousing this perspective is, in the present international circumstances,

58  Raffaele Marchetti a strenuous politics of resistance to neo-liberalism, both in its ideological forms and in its institutional structures. In this context, though under-­ theorized, the sociopolitical situation has to be interpreted as a contentious scenario. Social movements and civil society organizations are seen as key actors in a fight against power structures that can, at times, become direct and out of current legality. Despite some minor reformist views, the bulk of the alter-globalist logic tends towards ‘abolishing rather than polishing’ institutions such as the World Bank, International Monetary Fund and World Trade Organization (Bello 2002). These institutions are considered to be so embedded in a system of power organized from above that the possibility properly and democratically to reform them is seen as minimal. Equally, the ethnicist variant of localism holds the concept of national resistance in the form of free or autonomous nationalism. However, the localist political perspective, especially in its alter-globalist variant, does not preclude positively envisaging institutional structures, even at the international level. These are admitted and actually encouraged, provided they are constructed from ­below, for coordination between the differing place-based political projects is key in at least two senses. Accordingly, this positive project suggests the implementation of a scheme of de-globalization, namely de-structuring and de-linking the places of politics and production from the global chaining, in order to regain democratic control from below. In accordance with the principle of autonomy, this does not mean autarky, but rather the subordination of external relations to the logic of internal development, i.e. reorienting foreign policy from global decisions to local self-determination, and production from export to local consumption. The specific model of alter-globalism gradually emerged in the last decades of the 20th century and more decisively at the turn of the millennium, through the intensification of cross-border mobilizations of transnational social movements and global civil society more in general (Pianta and ­Marchetti 2007; Smith 2007; Tarrow 2005). The first signals of this e­ mergence can be traced back to the 1970s in relation to the ‘new social movements’, concentrated around the themes of peace, human rights, solidarity, development, ecology and women’s issues. In the following decade, these still-­scattered ­ olitical potential, tomovements gained a more acute awareness of their p gether with the capacity for a strengthened self-­organization. This was due to a number of windows of opportunity offered by the international system, first and foremost the major international events such as the UN thematic ­ uman Environment conferences. From the 1972 UN Conference on the H held in Stockholm to the 1992 Rio Conference on the ­Environment, these gatherings provided opportunities for meetings, exchanges and cross-­border initiatives, creating a space for transnational civil society actions. In the 1990s, global social movements succeeded in consolidating transnational networks and organizing separate campaigns. Particularly relevant among them are the campaign for the establishment of the International Criminal Court (ICC) (1995), the Jubilee campaign on Third World debt (1996), the

The master frames of globalization and the G7  59 campaign against the Multilateral Agreement on Investment (MAI) (1998), the International Campaign to Ban Landmines (1992) and the Treatment Action Campaign on HIV and AIDS (1998). With the new millennium, a structural scale shift occurred in the nature, identities, repertoires of action and strategies of global social movements. The turning point in all of these respects was the creation of the World Social Forum as a space for the meeting of all organizations, social movements and individuals that have challenged neoliberal globalization.

Civilizationism While the civilizational paradigm gradually emerged as a significant model of global politics only in the last few decades, it nonetheless constitutes a further robust component in the discussion about globalization. The civilizational model is centred on the primacy of the cultural and religious bond. While acknowledging the relevance of other traditional human bonds, such as economic and political ones, the discourse on civilizations ­recognizes the cultural and religious aspect of human life as predominant. The model makes primary reference to civilizations and cultural élites as key actors in the political system. Accordingly, political power is interpreted as ­being managed in a decentralized way by intellectual and religious ­leaders. ­Religions and macroregional bodies are seen as key players in a political ­system that preserves pluralism and heterogeneity. Within the political and economic context of globalization, characterized by a high degree of ­political and e­ conomic exclusion, the perspective of civilizations offers grounds for a conservative rejection of current global transformations. The model of the clash/encounter of civilizations is centred on the n ­ otion of civilization intended as the ultimate cultural reference, beyond any other local and national elements. Civilization is thus the highest cultural grouping of people and the broadest level of cultural identity. While the notion of identity is reinterpreted as multilayered, civilizational identity is ­acknowledged as the ultimate, most encompassing layer. Civilizations are accordingly interpreted as double-natured. While externally civilizations present themselves as monolithic, internally they allow for moderate pluralism. ­Civilizations are relatively stable social references, though they may overlap, include sub-civilizations, and change over time. As a matter of fact, civilizations have arisen and fallen throughout history. What is interesting within the clash/encounter of civilizations approach is that with the recognition of the West’s loss of centrality comes also the recognition of other non-Western civilizations’ full status as antagonists/dialogical companions. According to the thesis of the clash of civilizations, the key mode of the relationship between civilizations is conflict and competition. While states remain important actors in global politics, conflicts will spring up between civilizations through the fault lines, i.e. those states that are on the border or even divided between two civilizations (torn countries). Civilizations need

60  Raffaele Marchetti not necessarily collide, but history proves that this is the most likely outcome. Remaining anchored to history, the thesis of the clash of civilizations claims to be purely descriptive. Accordingly, the reasons for conflict will thus be more related to cultural aspects than to ideological or economic factors. Key factors contributing to conflict mainly relate to the fact of irreducible cultural differences. Civilizational divergences are basic and irreconcilable. Since they are less mutable, they are also less prone to compromise. Globalization also contributes to civilizational tensions for a number of reasons. On the one hand, globalization increases the awareness of the other; this allows for the rediscovery of one’s own identity but also generates opportunities for conflict. On the other hand, economic modernization is blending long-term local identities, and as these fade, broader, civilizational and world religion identities are supplying a functional substitute. While sharing the ultimate assumptions on the nature of civilizations with the clash of civilizations model, the model of the encounter of civilizations is more inclined to conceive normatively the possibility of dialogue among different cultures and also the possibility of political cooperation. Within this perspective, there are four key principles. First, culture-basedness holds that politics should be interpreted as deriving from specific cultural traditions which cannot be trans-bordered (MacIntyre 1984). Second, élites guidance suggests that cultural and religious élites are particularly better equipped in understanding the complexity of sociopolitical context and in identify the right interpretation of traditional principles for any specific circumstance. Third, diversity maintains that cultural frameworks are irreducible to one another and thus rejects universalism in the name of a reaffirmed pluralism (Dallmayr 2003). Fourth, respect entails equal treatment among different civilizations and refuses the normative hierarchies used by the 19th century discourse on civilizations vs. barbarians (Manoochehri 2003). Fifth, goodwill is seen as the crucial component for starting up a dialogue that leads to reciprocal understanding (based on the hermeneutic method) and a nearing of different civilizations (Dallmayr 2003), while non-violence prescribes peaceful ways of interacting (Tehranian and Chappell 2002). In terms of institutional design, the inclination of such kind of political perspective is towards developing forms of regional cooperation within and among different civilizational areas (Katzenstein 2010; Michalis and Petito 2009). According to the civilizational model in both its conflict and dialogical variants, politics focuses on the high institutional level of exchange among élites. In contrast to the homogenizing tendency of current global transformations, this position fosters a multipolar world, in which mutual coexistence allows for the competition or, alternatively, for the flourishing of different cultural and political traditions. A major ideological foe of the model of civilizations is the so-called neo-liberal globalization, with its equalizing tendency that neglects cultural differences. Politically speaking, this means that projects aiming at developing regional cooperation within and among different civilizational areas have to be supported

The master frames of globalization and the G7  61 (Camilleri 2004; Cassano and Zolo 2007). Forms of universalism are thus rejected, except for thin forms of coordination as in the projects for reforming the UN Security Council along civilizational representation. Along the same lines, international politics would move back to regional policies, so much so that most of international affairs (such as military conflicts or financial crises) would be dealt with by regional organizations. Sharing a number of premises but pointing to a very different political scenario, the ­radicalization of religious traditions from political Islamism to Christian fundamentalism seems to suggest a parallel project of global politics (Bob 2012; Haynes 2012; Juergensmeyer 2005; Thomas 2010). In more general terms, this ­approach is closer to the overall trend towards multipolarization of the world o ­ rder, according to which we would be entering a post-global order in which long-standing cultural differences mainly stemming from religious ­divergences, would be re-emerging and effectively reshaping the contours of world politics. Incipient attempts to recognize the centrality of the notion of civilization in international affairs occurred in the late 19th century, with the establishment of the Parliament of the World’s Religions (1893), and in the first half of the 20th century, with the creation of the World Congress of Faiths (1936); but it was only in the 1970s and 1980s that a clear recognition of the civilizational factor as a key component of international relations emerged. It was doubtless the publication of Huntington’s famous article on the ‘Clash of Civilizations’ in 1993 (Huntington 1993) that turned what had originally been a predominantly religious discussion into a fully fledged political ­debate. The events of 9/11 only boosted the attention given to Huntington’s thesis and initiated a campaign of division along civilizational lines that is contributing to shaping today’s global politics. In reaction to Huntington’s thesis, a number of political statements and theoretical formulations in terms of dialogue among civilizations have been developed not only in academia but also in public discourse and in institutional discussion. In academia, Dallmayr (2003) and others offered a robust foundation for the dialogue of civilizations in hermeneutic terms. In the public political domain, the backing of the idea of a dialogue of civilizations by the centennial meeting of the Parliament of the World’s Religions (in 1993) (Küng and Kuschel 1995), and the World Public Forum–Dialogue of ­Civilizations (World Public Forum 2004), offered a concrete space for interaction. A number of key emergent global players supported the idea, including former Russian President Vladimir Putin (together with the ­Patriarch of the Russian Orthodox Church), Chinese President Hu Jintao and especially former Iranian President Mohammad Khatami (Khatami 1999). Beyond Iran, in the Islamic world, the idea of civilizations was also favourably received (ISESCO 2001). The European Commission during the Prodi presidency (2004) established a High-Level Advisory Group ­ uro-Mediterranean Dialogue. Above all, the UN’s institutional for the E backing  – with the designation of 2001 as the year of the Dialogue of

62  Raffaele Marchetti Civilization (United Nations 2001), and with the initiative on the Alliance of ­Civilizations (2004) cosponsored by the Spanish Prime Minister Jose Luis ­Rodriguez ­Zapatero and his Turkish equivalent Recep Tayyip Erdogan which generated a United Nations High-Level Group on this topic (United ­Nations 2006) – was key in the consolidation of this discourse. Today, civilization is firmly established as a key concept for an interpretation of global politics beyond a limited state-based perspective.

Conclusion In this chapter, the major non-conventional master frames of global politics have been presented as the ultimate normative context within which the G7 discussion takes place. They constitute the ideal background of the current political project advanced in the global arena. While translating to the global domain a number of characteristics of domestic politics, these models also present an innovative conceptualization of political discourses. Going beyond traditional state politics as anchored in parties and national representations, these models clarify the ultimate normative references upon which traditional and new actors alike are building up their global political positions. Master frames of global politics advocate for the need of a reconstruction of the current system of international affairs on different, more comprehensive bases. From the religious perspective to participatory democracy, from transnational citizenship to global market, new understandings of the polity, that challenge traditional intergovernmental politics, emerge within the framework of globalization. The outline of the major master frames of global politics, centred as they are on the cleavage pro- vs. anti-globalization, allows us to better understand the political positioning of the G7 in world politics. As analysed in detail in the other chapters, the G7 has by and large endorsed a broadly neo-­ liberal agenda in the last decades. However, in a post-crisis and increasingly post-Western world, such political orientation is being questioned. During the current financial crisis, the political debates moved from secondary ­issues to key macroeconomic and (eminently) political decisions that have to do with the positioning of a country vis-à-vis the global/regional economic integration. Accordingly, the political ideological framework changed dramatically. In many European countries, we have by now trans-ideological governments, in which centre-left and centre-right parties share power in the name of the European orthodoxy, while the oppositions is made up by those that share a common anti-European establishment attitude. In the United States, with the Trump presidency, the shift to a more localist position has already taken place. In the UK, the Brexit decision followed a similar path. Following these transformations, we could witness a major political reorientation of the G7 itself towards a less neo-liberal and a more localist outlook. Ultimately, the survival of the globalization project itself depends on the extent to which these new claims will be accommodated

The master frames of globalization and the G7  63 within the current institutional setting. It is clear that the anti-­g lobalization stances could pose a fatal threat to the sustainability of the global integration process, if a solution of political compromise is not found between ­globalist and localist positions (Marchetti 2016). Within this dispute, the G7 remains a key setting for deliberation and possibly for envisaging a conciliatory reform of the globalist position that has been predominant thus far.

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4 The role of the EU in the G7 in times of populism, nationalism and anti-globalism Jan Wouters and Sven Van Kerckhoven

Introduction The European Union (EU) and the Group of Seven (G7) both mark, in their own distinct ways, a changing world. Over the last decades, globalization has caused the world’s economies to grow ever more intertwined and dependent on one another. As a consequence, transnational issues have grown in number and significance, sidelining the nation state as the main decision-­ making body. Globalization has put traditional state-based governance arrangements on shaky ground and has greatly diminished the ability of individual countries to address contemporary challenges. The famous Yale economist Richard Cooper (1968: 262) already opined in 1968 that globalization ‘is prompting significant shifts in sites of political authority upwards to newly empowered supranational institutions, downwards to revitalized regions, provinces and municipalities, and laterally to private c­ orporations and non-governmental organizations that acquire previously “public” ­responsibilities’. With nation states struggling, the need for transnational governance bodies to provide guidance and rules for the conduct of international affairs has been historically high. Institutions have been set up at the global and regional levels to address these challenges. The present chapter focuses on two of these bodies: the EU and the G7, which from 1997 until 2014 also convened as the Group of Eight (G8).1 While very different, both groupings have enabled their members to work cooperatively to address transnational issues, and both face some similar challenges today. The EU is the most far-reaching example of a highly institutionalized ­regional integration organization.2 It has brought together an increasing number of European countries in a strongly integrated ‘ever closer union’ with a broad and deep delegation of powers to supranational institutions, resulting notably in the world’s largest single market and the world’s secondlargest currency, the Euro. The European integration process began in the aftermath of the Second World War as a vehicle to promote peace on the Old Continent. The supranational track of this process – as there is also a more intergovernmental track, i.e. the Council of Europe, established in 1949, not dealt with here – kicked off in 1952 with a small-scale sectoral organization

The role of the EU in the G7  69 aimed at sharing the production of coal and steel, the key ­resources for war: the European Coal and Steel Community (ECSC), ­established between West Germany, France, Italy, Belgium, the Netherlands and Luxembourg with the Treaty of Paris. Over the years, several treaties have progressively broadened this small-scale cooperation into a common market spanning the entire economies of its member states (the 1957 Treaty of Rome, creating the European Economic Community (EEC)) and a political, economic and monetary union (the 1992 Maastricht Treaty on E ­ uropean Union (TEU), further consolidated in the 2007 Treaty of ­Lisbon). Nowadays, the EU disposes of broad and deep powers in a great variety of socio-economic and foreign policy fields. Moreover, the number of member states has risen to 28 over several enlargement rounds.3 Notwithstanding this impressive evolution, recent years have seen the rise of protest movements and of nationalist and populist political parties in several EU member states displaying anti-European stances. Eurosceptics have put forward questions related to the costs and benefits of being a member to the EU. A major landmark in the rise of anti-European sentiment was the decision of the United Kingdom (UK) to leave the EU after its Brexit referendum of 23 June 2016. The UK is the first member state ever to leave the EU, after having joined the European Communities in 1973. Two years after the UK joined the European Communities, the finance ministers and central bank governors of six major industrialized economies (France, West Germany, Italy, Japan, the UK and the United States (US)) informally met at the Château de Rambouillet, close to Paris. The intention was to discuss current world issues, dominated at the time by the oil crisis, in a frank and informal manner. A year later, Canada joined the second meeting of the G6 in Puerto Rico, transforming the G6 into the G7. In 1997, the ­Russian Federation joined the G7, making it the G8 – until 2014, when Russia was suspended from the G8 meetings after its annexation of Crimea.4 The G7 can best be described as an informal intergovernmental forum aimed at achieving policy coordination between its members (see Hobson (2007) for further details). Having started with a focus on discussing macroeconomic questions and sharing best practices to deal with them, the G7 currently addresses a wide variety of issues. The G7 members represent 62% of global wealth and 46% of the global nominal GDP (at market exchange rates), but only a bit more than 10% of global population (Credit Suisse Research Institute 2017). The rise of informal global governance bodies such as the G7 (and later the G20) was born out of the frustration of world leaders with the inefficiency and slow decision-making of the traditional international institutions that had been established in the aftermath of the Second World War (Bayne 1992). By allowing for swift and informal coordination, the G7 (and later the G20) provides countries with the means to escape the traditional prisoners’ dilemma. It allows them to overcome the incentive of introducing so-called beggar-thy-neighbour policies, whereby one country’s policies hamper its neighbouring countries (Van Kerckhoven and Crombez 2015). Over the last

70  Jan Wouters and Sven Van Kerckhoven 40 years, G7 members have managed to find agreements on a wide variety of issues and have been able to coordinate rather successfully.5 As a result, the G7 became one of the de facto steering groups in global governance (Wouters and Van Kerckhoven 2017). But it has also faced contestation and protests as it has been deemed to be a rich countries club (Dobson 2007: 29–31, 84–85). The EU and the G7 are the important bodies in regional and global ­governance. Despite their considerable differences, both were founded on the idea that cooperation, coordination and, in the case of the EU, ­integration ultimately benefit their members and the international ­community at large. Due to recent political tendencies and events, the support for such an agenda is deteriorating. The question that this chapter seeks to address is how the EU, despite that difficult context, can continue to push for global cooperation and a fairer distribution of the benefits of globalization through its engagement at the G7. The next section addresses the external role which the EU has set for i­tself on the world scene since the turn of the millennium. The engagement and growing role of the EU at G7 summits is addressed in the third section. As indicated, due to current developments in an era of anti-globalism, nationalism and populism, both bodies face particular challenges, which are addressed in the fourth section. The fifth section argues that the EU should take a leading role at the G7 to support global cooperation and should ­attempt to make globalization work for all, even though it currently lacks a strategy to deal with bodies such as the G7.

Europe in the world When the European integration process took off, the global outlook of its member states became engrained in the DNA of the European Communities, and later the Union. Today’s Union has taken over, and considerably expanded, some of the external policies of the member states. It has even taken over the external representation of its members in certain instances and in certain international organizations. For example, in 1995, the EC became a founding member of the World Trade Organization (WTO), where it speaks on behalf of its member states (which themselves are also WTO members) (Cottier 1998). In other cases, the EU is not represented effectively, such as in the case of the International Monetary Fund (‘IMF’; see Wouters and Van Kerckhoven 2013 and Wouters, Van Kerckhoven and Ramopoulos 2013). In yet other cases, such as the G7, the EU has been invited and has participated in the summitry, but it did not receive a formal membership status. At the start of the millennium, the engagement of the EU in international affairs came to the fore in the Laeken Declaration on the Future of Europe adopted at the Laeken European Council in December 2001. The Laeken Declaration stated the following: Does Europe not, now that is finally unified, have a leading role to play in a new world order, that of a power able both to play a stabilising role

The role of the EU in the G7  71 worldwide and to point the way ahead for many countries and peoples? Europe as the continent of humane values, the Magna Carta, the Bill of Rights, the French Revolution and the fall of the Berlin Wall; the continent of liberty, solidarity and above all diversity, meaning respect for others’ languages, cultures and traditions. The European Union’s one boundary is democracy and human rights. The Union is open only to countries which uphold basic values such as free elections, respect for minorities and respect for the rule of law. This statement clearly indicates the EU’s willingness to play an important role in the world. It further outlines that the EU strives to be a stabilizing force and is driven by the principles of democracy, human rights and the rule of law as its most important core values. This outward-looking approach has been strengthened with the latest round of important institutional changes, i.e. the 2007 Treaty of Lisbon, in which the EU further ­exhibits its global ­aspirations by clearly stating its external objectives. ­Article 3 (5) TEU defines the EU’s objectives ‘in its relations with the wider world’, stating that ‘the Union shall uphold and promote its values and interests’6 and ‘shall contribute to peace, security, the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights, in particular the rights of the child, as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter’. More specific guidance is provided in Article 21 TEU, stating the Union’s desire to ‘develop relations and build partnerships with third countries, and international, regional or global organisations’ by promoting ‘multilateral solutions to common problems’ (Article 21 (1) TEU) and working towards ‘a high degree of cooperation in all fields of international relations’ and ‘an international system based on stronger multilateral cooperation and good global governance’ (Article 21 (2) TEU). The EU’s stated preference for multilateral cooperation – also referred to as ‘effective multilateralism’, notably in its 2003 Security Strategy A Secure Europe in a Better World (European Council 2003) – goes hand in hand with a focus on a rules-based international order. The EU favours legally binding commitments and strong international regimes, not just in economic policy fields but also in related domains, such as environmental and social policies. At the same time, the EU’s commitment to promoting the principles of ­democracy, rule of law and human rights in the world, implies that, from its perspective, these principles are not to be seen as a threat to national sovereignty but rather as prerequisites for sustainable international cooperation (Wouters et al. 2012). Moreover, the EU can be seen as a norm entrepreneur (Finnemore and Sikkink 1998) with the aim of ‘extend[ing] its norms into the international system’ (Manners 2002: 252). In short, the EU is a supporter of stable, long-term, institutionalized relationships, in which it seeks to see its values reflected. However, the G7

72  Jan Wouters and Sven Van Kerckhoven cannot be seen as an institutionalized form of global governance. The G7 is an informal grouping of industrialized countries that does not produce any legally binding decisions. As such, the EU’s approach with regard to the G7 falls somewhat beyond the scope of the EU Treaties. As a successor to the 2003 Security Strategy, the EU’s Global Strategy for its Foreign and Security Policy, entitled Shared Vision, Common Action: A Stronger Europe, adopted in June 2016 (EEAS 2016), lays down the EU’s current approach towards international challenges. In less unusual times, this strategy would have been received as no more than the next iteration of the main drivers and ambitions of European external action. However, in the context of the current turmoil, and in particular, the UK’s Brexit referendum, which took place only a few days before its formal presentation at a European Council meeting, the 2016 Global Strategy has gained additional significance. It reiterates and reinforces the EU’s defence of a liberal rules-based order but encompasses some more pragmatic nuances. However, in light of recent events, it can be perceived as a defiantly distinctive stance vis-à-vis these trends (Larik 2017). In addition to a continued emphasis on the rule of law and international norms, the global strategy exhibits a p ­ arallel and related emphasis on governance and strong global institutions, most clearly in the section entitled ‘Global governance in the 21st century’. ­According to the strategy, a commitment to global governance ‘translates into an aspiration to transform rather than simply preserve the existing ­system’.7 This clearly indicates the EU’s willingness to go beyond traditional international organizations and to adapt the current global governance system to contemporary challenges. Even though the 2016 Global Strategy has been heralded as a landmark document to guide Europe’s external actions, it falls short of providing comprehensive answers, including with regard to the approach the EU should take towards informal bodies. Apart from a brief oblique reference to the G20, the global strategy does not pay attention to informal bodies. The G7 is not even mentioned in the strategy, which is rather striking given the role of the G7 as a global steering body (Wouters and Van Kerckhoven 2017), and the long-standing relationship the EU and the G7 have developed, as highlighted in the next section.

The EU at the G7 The G7 was founded with the view to facilitate and share macroeconomic initiatives. Since 1975, G7 leaders have met annually in rotating venues. As indicated above, the Group was initially co-founded by four EU member states (France, Germany, Italy and the UK), in addition to the US and ­Japan. With the UK set to leave the EU, there will be only three EU member states left. In addition to the EU member states represented at the G7, the President of the European Commission (‘the Commission’) has been

The role of the EU in the G7  73 invited since 1977 – initially against the will of the very progenitor of the G7 process, the French President Giscard d’Estaing (Dobson 2007: 57). The G7 ministers of different issue fields have met as well on a more or less regular basis. The G7 ministers of trade, finance and foreign affairs meet at least annually. For other issue fields, their meetings take place more irregularly. For example, during the 2017 Italian G7 presidency, the High Representative of the Union for Foreign Affairs and Security Policy, Federica ­Mogherini, participated in the G7 meeting in Lucca (10–11 April 2017), whereas ­Commissioner Cañete participated in the G7 Energy Ministerial in Rome (9–10 April 2017). For what follows, it is important to remember that the G7 cannot be considered as a formal organization. It is an informal group of heads of state or government, or ministers, discussing cooperation. The G7 (just like the G20) does not have a legal basis, formal rules for membership or a secretariat (Wouters and Van Kerckhoven 2011; Wouters, Van Kerckhoven and Odermatt 2013). The meetings are chaired by the annual rotating presidency, which hosts the summit, the preparatory meetings, and manages the agenda. According to the Commission, a legal mandate is not necessary for the EU to participate in the G7’s work, since no formal decision-making takes place at the G7 and since discussions remain mostly political (Huigens and Niemann 2009). As indicated above, relations between the EU and the G7 date back to 1977, when the President of the Commission was invited to take part in those sessions that dealt with items that fall within EU competences, such as trade (Hainsworth 1990). Over the years, the EU got involved in an increasing number of discussions. Since 1981, the President of the Commission has attended all sessions of the G7. The rotating Presidency of the Council has irregularly attended G7 summits from 1982 onwards. In essence, this only occurred when the Presidency was held by one of the EU G7 members. If this was not the case, the Presidency was not invited in order to keep the number of participants limited. Niemann and Huigens (2011) argue that the Commission, despite being structurally disadvantaged at the outset, has managed to emancipate within the G7 over time. This relates to both the fact that European integration has continuously expanded and deepened since the Commission’s first participation in the G7 summitry and the fact that the latter provided the perfect opportunity for the Commission to increase its international relevance. The EU is the only G7 participant with both a direct and indirect participation. Indirect participation takes place through the individual EU member states that are also G7 members; direct participation through the President of the Commission and, since the entry into force of the Treaty of Lisbon, the (permanent) President of the European Council. This unique characteristic is partly a result of the concern that EU member states that are not in and of themselves members of the G7 felt treated as second-class countries in G7 proceedings. As they were not represented, they lacked a

74  Jan Wouters and Sven Van Kerckhoven voice in discussing global challenges and their solutions. For that reason, excluded member states advocated for some form of representation of the EEC (the Netherlands even threatened to stop lending to the UK and France for this reason). They were joined in this endeavour by the C ­ ommission ­itself. The Commission lobbied intensively for a representation at the summits, based on the exclusive competence of the EEC in certain policy fields, such as international trade (Debaere 2014). In this context, it deemed an agreement on export credits of the 1976 Puerto Rico G7 summit illegitimate because it interfered with Community competences (Niemann and Huigens 2011: 424). Soon after, the Commission’s participation was extended so as to cover all G7 agenda items, which have been broadening over the years (Hajnal 2008). From 1978 onwards, the Commission’s participation at G7 summits had become uncontested. In 1987, the Commission for the first time took the lead in preparing a G7 working paper dealing with the problem of sub-Saharan African debt, which served as the basis for summit discussions (Hainsworth 1990). A few years later, the G7 tasked the Commission with the coordination of Western aid to the former Eastern Bloc countries, in the aftermath of the collapse of communism. The resulting PHARE programme, which was decided upon at the G7’s Paris Summit, clearly demonstrated the recognition of the Commission’s role in the G7. Compared to the Commission’s involvement, the rotating Council Presidency failed to have an impact (Debaere 2014) until the establishment of a permanent President of the European Council by the Treaty of Lisbon. With regard to the ministerial meetings of the G7, the responsible Commissioner (or a Commission official) joins these meetings. However, as argued by Debaere et al. (2014), the participation of the EU can still be seen as from the point of view of an active participant, rather than from one of full membership.8 It has been argued that the other participants recognize the EU as an equal participant in the G7 meetings, even though it is not formally a member (Huigens and Niemann 2011). Coordination before G7 meetings between EU member states and the EU is not extensive (Debaere and Orbie 2013). Informative briefings from the Commission to the Committee of Permanent Representatives (COREPER) are conducted before and after every G7 summit. Additionally, the ­European Council can adopt a coordinated position. During the years that the G8 ­operated, the G7 continued to meet without Russia to discuss financial and monetary matters. In this case, coordination remained stronger with a division of work between the Eurozone Group, focusing on monetary issues, and the Commission, dealing with more general economic issues. ­Sometimes G7 matters are also discussed during Economic and Financial Affairs Council meetings of the EU finance ministers (Nasra et al. 2009). The weak coordination can be explained by the fact that individual EU G7 members do not want to relinquish their privileges. As indicated above, the informal nature and the lack of legally binding decisions of the G7 further add to this.

The role of the EU in the G7  75 It has been argued in earlier scholarship that EU-G7 cooperation is a winwin. The relation between the EU and G7 is interdependent and mutually reinforcing. The EU helps to improve the effectiveness of the G7, while participation in the meetings of the latter reinforces the international legitimacy of the EU (Kirton et al. 2010: 219, Larionova and Rakhmangulov 2009). Moreover, the EU has done well in living up to its commitments made at the G7. Due to its structure and its limited membership, the G7 has proven rather efficient when it comes to realizing the intended output (Larionova and Shelepov 2017; Wouters and Van Kerckhoven 2017). The EU has been one of the best compliers with G7 decisions (see Table 4.1). The EU’s compliance numbers are, in general, higher than those of the other G7 members. Even more striking, the EU’s compliance numbers are higher than those of the individual EU G7 members. This clearly demonstrates the high level of Commission autonomy. Indeed, informally, the Commission has managed to enhance its authority on issues where it can provide substantial expertise. Even though the Commission’s freedom of action is subject to the control of its principals (i.e., the EU member states), the informal nature of the G7 has helped it to enhance its actorness (­ Huigens and Niemann 2011). The workings of the EU in the G7 are exemplified by the ambiguity and the informality that is characteristic for the G7. This ambiguity is sometimes due to the dual representation of some of the EU member states. For example, with regard to energy policy, some EU G7 members were able to strengthen their position towards each other due to the support of non-G7 EU member states (Bonvicini and Wessels 1984: 180). The potential for conflict between some individual EU G7 members in turn might pose its own challenges for the European integration process (Jokela 2011). It is clear from the above that the G7 and the EU share the idea of developing better macroeconomics policies. Moreover, both bodies aim to do so by increasing cooperation among different countries. This conviction is based on the premise that cooperation increases global welfare and the Table 4.1  EU and overall compliance with G7 decisions (selected issues) Summit

EU compliance

Overall compliance

2016 Ise-Shima Summit a 2015 Schoss Elmaub 2014 Brusselsc 2013 Lough Erned 2012 Camp Davide

0.67 0.95 0.81 0.61 0.59

0.49 0.65 0.63 0.51 0.6

a b c d e

G8 Research Group (2017). G8 Research Group (2016). G8 Research Group (2015). G8 Research Group (2014a, 2014b). G8 Research Group (2013).

76  Jan Wouters and Sven Van Kerckhoven provision of public goods (Van Kerckhoven and Crombez 2015). However, recent events have made cooperation and coordination more difficult, as discussed in the next section.

Issues in the age of populism, nationalism and anti-globalism Recent years have seen an increase in the contestation of international and regional cooperation efforts and a rise of anti-globalism. Moreover, populist and nationalist political parties are attracting support from those living in advanced economies who feel that globalization has impacted their lives negatively. This being said, discontentment with international and supranational institutions is not new. For example, in 1988, the annual meetings of the IMF and the World Bank saw scores of protesters trying to derail the meetings. International anti-globalization protests took place in various cities around the world on 18 June 1999, the day of the G8 Summit in Cologne (most notably in London and Eugene, Oregon).9 Large protests also took place during the Gleneagles meeting of the G8. For this specific event, but probably holding true for protests at other events as well, it has been found that the protests were rather chaotic and unorganized. Across the protest groups, there was little unity and no agreed definition of success (Barr and Drury 2009), pointing to their loose character. Most recently, the 2017 G20 summit in Hamburg saw significant protests and a violent confrontation between protesters and the police. The rise of these protests has been facilitated by the growth of social media networks (Poell and Borra 2011). The EU has seen its fair share of protests as well, most commonly in southern member states, with Greece, Spain and Italy during the Eurozone sovereign debt crisis as prime examples. As has been argued, these protests reflect growing grievances among large swaths of the population, with the way globalization has been managed. For economists, it is clear that globalization results in higher welfare gains. However, whether everybody benefits is a question of how these welfare gains are distributed among, and within, countries. Stiglitz (2017) argues that these protests express popular discontentment with regard to the distribution of welfare gains realized by globalization. The general public has witnessed that globalization is not exactly providing what politicians, both in Europe and beyond, promised them. Instead of steady rises in welfare due to lower prices originating from stronger competition, multinationals have thrived while societies in general face higher unemployment, decreasing salaries and decreasing labour participation (De Loecker and Eeckhout 2017). Until recently, these public outcries of concerns with globalization were rather limited and mostly anarchist-inspired events. However, in Europe and the US, the growing discontentment with globalization has meanwhile reached the ballot box. The latest rounds of elections in 2016–2018 showed the growing strength of parties who are sceptic towards globalization and institutions above the level of the nation state: the rise of United Kingdom

The role of the EU in the G7  77 Independence Party in the UK, Front National in France, Partij voor de Vrijheid in the Netherlands, Freiheitliche Partei Österreichs in A ­ ustria, ­Alternative für Deutschland in Germany, the re-election of Orbán in ­Hungary and so on. For the purposes of this chapter, the election of Donald Trump as US President and the 2016 Brexit referendum in the UK are probably the most interesting events (see infra). All of this serves as a reminder that borders do matter in political ­discourses and threaten global and European cooperation. It further demonstrates that globalization and the way it has been managed is b ­ ecoming the defining political divide, rather than the traditional left-right divide (Kriesi et al. 2013; see also Marchetti, this volume). The question can be asked what impact the current era of anti-globalism, nationalism and populism has on the EU and the role it plays in the G7. Three major issues play a particular important role in the EU/G7 relationship, namely the suspension of Russia from the G8, the Brexit vote and the election of Donald Trump as the US President. Russia suspended from the G8 A major blow to the G8 came with the annexation of Crimea by the ­Russian Federation in March 2014. In quick response, the G8-1 leaders convened an emergency meeting in The Hague a few weeks later. The seven other G8 members condemned the Russian Federation’s clear violation of the sovereignty and territorial integrity of Ukraine (G8 Research Group). They decided to hold their next summit in Brussels – the very first time the EU would host a G7 meeting – instead of Sochi and to suspend Russia from their meetings. The other G7 members noted that Russia’s actions in Ukraine contravene the principles and values on which the G7 and the G8 operate. As such, we have decided for the time being to suspend our participation in activities associated with the preparation of the scheduled G8 Summit in Sochi in June, until the environment comes back where the G8 is able to have meaningful discussion. The G7 2015 meeting in Schloss Elmau, Germany; the G7 2016 meeting in Shima, Japan; and the G7 2017 meeting in Taormina, Italy, all took place without Russia. On 4–5 June 2014, the G7 met without Russia in Brussels. The step back ­ ussia from the G8 to the G8-1 is surely remarkable. It first demonstrates that R does not feel constrained by the international rule of law, even though it had considered the G8 as a useful vehicle for cooperation (Jordan 2008). It further shows that the other seven leaders of the G8 do not approve of unilateral annexation and will not act simply to please Russia, which has been a longtime partner around the negotiating table. Some observers have applauded

78  Jan Wouters and Sven Van Kerckhoven this swift and clear signal. However, on the other hand, keeping Russia in the informal G-club might be beneficial in the long run. It keeps the door open for exchanges and negotiations, without the visibility that more formal organizations require. A case in point is the fierce rejection by the BICS ­(Brazil, India, China and South Africa) of the short-lived ­Australian proposal to exclude Russia from the G20 summit in Brisbane in November 2014. The suspension of Russia provides a challenge to the G7, due to the resulting reduced diversity in membership. Russia could be perceived as a bridge-builder between the G7 and the BRICS (Wouters and Van ­Kerckhoven 2017). At the same time, in certain issue fields, Russia might be unavoidable. This is more apparent when it comes to security (see Syria) than when dealing with economic issues (Wouters and Van Kerckhoven 2014). It might actually mean that the G20 might be a more appropriate venue to discuss certain issues on which Russia has an important say. Hence, the G7 might lose part of its relevance as a small but quickly moving steering group. Moreover, since Russia is joined by its fellow BRICS members in the G20, it might itself prefer that outlet. By sidelining Russia, and in the face of stronger emerging economies, the G7 may have lost some of its legitimacy. At the same time, this might provide an opportunity for the EU to engage more deeply with the other G7 members, who represent similarly developed industrialized countries. From this point of view, it is important to note that when Russia was suspended from the G8, the original summit location moved from Sochi to Brussels. As said, it was the first time the EU hosted a G7 summit: until then, it was generally accepted that the EU did not have the right to host a summit (Dobson 2007: 56). According to Debaere et al. (2014), this new development might mean that the EU is moving from participant status to a full member in the G7. While the suspension of Russia seems to have somewhat empowered the EU in the G7, the fraying relations with the US are likely to constitute the foremost challenge faced by the Union in this forum. Ahead of the 2018 Charlevoix G7 summit held in Canada, one of the most contentious to date, President Donald Trump called for the readmission of Russia, triggering the unequivocal opposition particularly from the EU members of the G7, along with Canada (Borger 2018). In a statement issued following a meeting with the leaders of France, Italy and Britain, held on the margins of the summit, German Chancellor Angela Merkel stated that they were ‘in agreement that a return of Russia to the G7 cannot happen unless substantial progress is made in terms of the problems with Ukraine’ (Schumacher and Winter 2018). The EU seems to be confronted with increasingly polarized relations with the US, while President Trump appears to seek closer ties with Russia, a tendency that is confirmed by the outcome of the bilateral meeting held with Russian President Vladimir Putin in Helsinki on 16 July 2018 (­ Sevastopulo and Foy 2018). It is impossible to predict with any certainty the implications of the most recent developments, however, there is little doubt that as the transatlantic relationship wanes an EU leadership role in the G7 would not go unchallenged. The view from the current US administration may well

The role of the EU in the G7  79 be that the link with Russia simply constitutes another tool to place under greater pressure the (trade) relations with traditional allies. However, this will not prevent President Putin from taking advantage of these developments, enabling and legitimizing his contestation of the global liberal order of which the EU remains one of the few standard-bearers. The UK leaving the EU A second major setback occurred with the 2016 Brexit referendum. In 2013 and in order to gather public support for his 2015 re-election, the then UK Prime Minister David Cameron announced an in-out referendum with regard to the UK’s membership to the EU. He also stated that he would propose a renegotiated EU package. After achieving his re-election, Cameron favoured remaining in the EU but aimed at renegotiating on four key areas: protection of the single market for non-Eurozone countries, reduction of ‘red tape’, exempting Britain from the ‘ever closer union’ and restricting EU immigration (BBC 2015). In February 2016, he negotiated a package with the EU which was presented to British voters as part of the referendum of 23 June 2016 on the UK’s membership of the EU. The outcome of the referendum clearly highlighted the divides within British society, with major differences in voting behaviour across different constituencies and demographics. Older and less educated voters clearly favoured Brexit (Becker, Fetzer and Novy 2017). Ultimately, the vote was tilted towards the ‘Vote Leave’ camp. As a result, David Cameron stepped down and was replaced by Theresa May. The ‘No’ vote clearly showed the impact of Eurosceptics and anti-­globalists. It was celebrated by right-wing and Eurosceptic political parties in other EU member states. On 29 March 2017, the UK formally invoked Article 50 of the TEU and presented a letter signed by Prime Minister Theresa May to the President of the European Council, Donald Tusk. This means that the EU and the UK have until 29 March 2019 to conclude their exit negotiations. The exit of the UK is a complex matter and is likely to entail significant consequences on a variety of issues (see Sampson 2017). However, the substantive impact is still unclear and will depend greatly on the negotiations. This is due to the lack of historical precedents: the UK is the first member state to leave the EU.10 The G7 Leaders initially stated their concerns in the run-up to the referendum. After their 26–27 May 2016 meeting in Ise-Shima, the Summit Declaration stated: ‘A UK exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create, and is a further serious risk to growth.’ After the referendum result, the G7 finance ministers, meeting on the margins of a G20 meeting in China, stated that they wanted a swift Brexit (Reuters 2016). Brexit has obviously also consequences for the relations between the G7 and the EU. It will cause the EU to lose one of its four member states at the G7 forum. At the same time, the UK will be acting as an individual actor in the forum and will no longer be able to rely on the other EU member states

80  Jan Wouters and Sven Van Kerckhoven to support its position. A clear example of this has already been demonstrated at recent G7 meetings. During the G7 foreign ministers meeting in Lucca on 11 April 2017, in preparation of the Taormina ­Summit, the UK failed to gain the support of the other EU member states when proposing additional sanctions against Russia. As both Germany and Italy resisted, the UK’s attempt eventually failed (Rayner, Swinford and O ­ liphant 2017; Watts 2017). As a result, the conclusions did not mention additional sanctions (merely the possibility that sanctions could be imposed) but stressed the need to engage with Russia: ‘We underline our interest to engage individually and collectively with Russia in these areas and to actively look for ways to jointly address common challenges for the sake of more effective solutions’. This could be an indication of the future dynamics between the UK and the EU within the G7. Such discord might hamper the G7’s ability to draft coordinated solutions to global problems. Clearly, it also affects the European voice in the G7. The UK could be i­ nclined to coordinate more closely with other G7 members, hurting the ability of Europe to attain its preferred outcomes. However, the picture is likely to be rather more complicated, as President Trump’s non-­committal and, in hindsight, somewhat cautious approach taken in his first G7 summit in Taormina (2017), has given way to outright hostility towards ­Europe and Canada at the Charlevoix G7 in 2018. Prime Minister Theresa May sought to make the UK’s stance on recent developments very clear, responding to President Trump’s suggestion that Russia should rejoin the G7 by noting, ‘[l]et’s remember why the G8 became the G7. And before discussions could begin on any of this, we would have to ensure Russia is amending its ways and taking a different route’. On the brewing US-led ‘trade war’, May referred to the tariffs imposed on EU exports of steel and aluminium as ‘unjustified’, stating her full support for the EU’s planned retaliatory measures: ‘Obviously the European Union will be responding. […] We want to ensure, and we’re working with others in the ­European Union to ensure, that this response is proportionate, that it is within the WTO rules’ (The Telegraph 2018). On the one hand, a closer cooperation between the EU and its member states within the G7 is now possible. Due to the UK leaving the EU, the interests of the EU G7 members and the EU may be more aligned. In combination with the Russian suspension, the EU might be able to become a stronger player within the G7, which could increase its voice and importance in its summitry. On the other hand, UK–US relations under the current administration are far from smooth and President Trump’s approach to the latest G7 summit has left Britain seeking to shore up its relations with EU partners, with whom it shares many common interests with regard to both trade and global multilateralism. Much will depend on the final outcome of the Brexit negotiations: if this resembles an Association Agreement, as the UK’s White Paper of 6 July 2018 seems to suggest, then the UK and the EU may find themselves far closer in their G7 stances than might have been predicted (European Parliament 2018).

The role of the EU in the G7  81 The election of Donald Trump as US President On 8 November 2016, Donald Trump was elected as the 45th President of the US, defeating Hillary Clinton. He was the favoured candidate among white voters without college education (McGill 2016). He has been very outspoken in his views with regard to international cooperation. His election and his foreign policy views, described as ‘America First’, constrain global cooperation (Trump 2011). He was elected on a programme built on a more isolationist approach, which may have a significant effect on global coordination and cooperation. In doing so, he was able to attract the support of many voters who are dissatisfied with globalization as they have mostly experienced its negative consequences (Stiglitz 2017). Donald Trump’s policy preferences, meanwhile, have had their first impact on the work of the G20 and the G7. As an example, one can first of all refer to the G20 finance ministers’ meeting on 17 and 18 March 2017 in Baden-Baden. During this meeting, they noted the importance of trade to the global economy, but due to disagreement with the US, their traditional anti-protectionist vow was dropped. After the meeting, the US Secretary of the Treasury, Mr. Mnuchin, stated: ‘We do have a new administration and a different view on trade’ (BBC 2017). ­Donald Trump indeed built his campaign on the idea that the US had ­negotiated unsatisfactory trade deals. With regard to the G7 ministerials, the US administration has hurt progress during the 9–10 April Energy G7 meeting in Rome. The other G7 officials rejected US proposals to push for fossil fuels (Fox News 2017). In a similar vein, the Trump administration declared that it was dropping out of the Paris Agreement (Ritter and Barry 2017).11 At the North Atlantic Treaty Organization summit leading up to the 2017 G7 Taormina Summit, President Trump did not explicitly endorse the mutual assistance clause that is fundamental to the Alliance (Gray 2017). German Chancellor Merkel reacted by stating that Europeans should take their fate in their own hands. At the G7 summit itself, President Trump played to his own tune, rejecting Italy’s proposal to issue a declaration underlining the benefits as well as pitfalls of migration (The Hindu 2017). This stance on immigration was in line with the US administration’s policy to issue a travel ban for people from some Muslim countries. Trump further refused to continue the G7’s work on free trade, as he did that same summer at the G20 Hamburg meeting, where he forced the G20 to drop the anti-­ protectionist pledge from the communiqué (Lanman 2017). Similarly, the G7 was not able to convince Trump during the meeting to return to the Paris Agreement (Pengelly 2017). As a result, several EU leaders, most notably Angela Merkel, have expressed their disappointment with the current US position on global issues. The common view is that traditional alliances are no longer as strong as they were and that Europe should pay more attention to its own interests (The New York Times 2017). The 2018 Charlevoix G7 summit only served to further confirm and deepen these trends, with President Trump levelling a heightened level of rhetoric

82  Jan Wouters and Sven Van Kerckhoven and hostility at his G7 partners, with ‘unfair’ trade relations with Canada and the EU high on his agenda (Rampton and Vey 2018). The ­President’s statements in the run-up to the summit – also calling for readmit Russia to the G7 (supra) – had prompted French President Emmanuel M ­ acron to respond on Twitter, stating that [t]he American President may not mind being isolated, but neither do we mind signing a 6 country agreement if need be. Because these 6 countries represent values, they represent an economic market which has the weight of history behind it and which is now a true international force. (Macron 2018) And yet, despite the significant rift, with President Trump reportedly threatening to end all trade with G7 partners if their trade practices would not change, it appeared that a common communiqué had been nevertheless agreed (Rampton and Vey 2018). But as the US President was headed to Singapore to hold talks with Kim Jong Un, he responded to Prime Minister Trudeau’s statement that Canada will ‘move forward with retaliatory measures’ by criticizing the Prime Minister as ‘very dishonest and weak’, thereafter refusing to sign the joint statement (Shear and Porter 2018). Though an isolated US may well entail new global leadership opportunities for the EU, the destabilizing effect of the current US administration on the G7 should not be underestimated, with deepening divisions carrying the potential of fundamentally undermining the effectiveness and raison d’être of this forum. At the national level, President Trump has already taken certain actions with the aim of implementing his agenda. These include the orders to (1) withdraw from Trans-Pacific Partnership; (2) identify countries with which the US has bilateral trade deficits along with their causes and consequences, including for national security; (3) strengthen the enforcement of laws ­requiring the US Government to favour American-made products and (4) start the renegotiation process for North-American Free Trade Association. These examples make it clear that the US’ leadership in global affairs is expected to diminish significantly (Noland 2016). This leadership vacuum will need to be filled. Within the G7, we submit that the EU could be capable of doing so, as the next section explains.

The need for EU leadership in the G7 Both the EU and the G7 have recently been hit at the core of their ambition to increase cooperation, coordination and integration. Both bodies have lost a member in recent years: Russia was suspended from attending G8 meetings, and the UK has decided by popular referendum to leave the EU. This comes at a time when public dissatisfaction with globalization is rising with increasing momentum. Recent elections in Europe and in the US have clearly shown that these forms of discontentment need to be addressed if the world intends to remain on the path of globalization. The US and the EU, traditional supporters

The role of the EU in the G7  83 and architects of the current governance mechanisms that guide globalization, face particularly strong internal populist pressures. Those pressures towards less globalization must be felt in the G7 as well. However, as a global steering group (Wouters and Van Kerckhoven 2017), the G7 is also uniquely placed to address this discontent. The G7 could play a major role in countering the current threats to the global economy (Bergsten, Truman and Zetelmeyer 2017). Possible avenues include new trade and environmental initiatives, within the new political constraints. Their implementation can revive the momentum towards cooperation and will be essential to resist the spread of protectionism. At a time in which one of the leading members of the G7, the US, is led by a president who stands for a more isolationist approach, the G7 needs to be led by other members. The EU seems best placed to provide this leadership. Individual G7 members like Canada and Japan, but also the individual EU G7 members, lack the ability and influence to guide the G7. The non-UK EU members in the G7, with the exception of Italy, have so far been able to resist populist and isolationist tendencies; at the very least, political parties representing these grievances have failed to gather majority support in their parliaments. This may indicate that the electorate in these countries might still not have given up on globalization or still believes in its potential. At first sight, the exit of the UK from the EU hurts the leverage of the EU and its member states in the G7. However, at the same time, it might allow the 27 remaining EU member states to integrate more deeply and at a greater pace: in international negotiations, the UK sometimes seemed to lean closer to its transatlantic partners than to its EU fellows, obstructing the ability of the EU and the other EU members to push forward, even if perhaps also this trend could be reversed by a weaker US-UK alliance. Still, the EU needs to incorporate informal bodies such as the G7 much more comprehensively into its external strategies. While such an exercise might be difficult due to the fact that some EU member states are themselves invited to these bodies and would like to remain able to use these bodies so as to advance their own national interests, it is also true – as seen above – that the informal nature of these fora does not incentivize the EU and its member states to draft a more comprehensive strategy and to develop more extensive coordination practices. However, the EU seems ready to continue to make the G7 work. Donald Tusk, president of the European Council, said the group’s leaders ‘sometimes have very different views’ on topics such as climate change and trade, ‘but our role as the EU is to do everything to maintain the unity of the G7 on all fronts’ (European Council 2017). The G7 can perform a particular function in the current environment. It should take into account the populist and nationalist tendencies that have been fostered by EU- and globalization-sceptic parties in their national environments. In doing so, the G7 should spread best practices focusing on making globalization work for all. This refers both to actions in favour of the G7 members’ own electorates, as well as to those of developing and emerging countries. Developing countries have so far failed to turn their fortunes around, even though globalization was assumed to have a positive

84  Jan Wouters and Sven Van Kerckhoven effect also on these countries. Emerging economies have been able to benefit from globalization, whereby many in China and India have been lifted out of poverty. However, globalization has also created challenges for emerging economies. Their economic growth has generated new issues such as environmental and social problems. At the same time, the current growth path of some emerging countries might not be sustainable. Once their growth slows down, they might also start witnessing more populist, nationalist and/ or isolationist political parties. It is thus of utmost importance that the G7 spreads best practices with regard to the distribution of the gains of globalization and ensures that globalization works for all. In the absence of US leadership, the EU could play a leading role in this respect.

Conclusion: the way forward Over the last decades, the G7 and the EU have both been proponents of increasing coordination and cooperation. For the EU, this has been characterized by deep integration among an ever larger number of European countries, whereas the G7 focuses on cooperation on the global level. Their relationship has been rather strong and has allowed both the G7 and the EU to address some of the issues in the European and global economy. However, the recent rise of anti-globalism and populism hampers their functioning. This chapter has focused on three of the major rifts in recent years, namely the annexation of Crimea by Russia, Brexit and the 2016 US elections, and their impact on the relationship between the EU and the G7. For the EU, the most important short-term issue is Brexit. Here, it is paramount that swift negotiations help to address some of the issues revolving around the UK’s withdrawal. With regard to its work in the G7, the EU loses one of its member states around the table. At the same time, this might result in a higher profile of the EU at the G7. For the G7, the 2014 annexation of Crimea by Russia and subsequent suspension of the latter, as well as the 2017 election of Donald Trump as US President, constitute significant challenges. With Russia suspended from the meetings, the remaining seven members might find it easier to reach consensus, but it affects their legitimacy and disconnects them from BRICS summitry. The G7 might, hence, find itself lacking in power to effectively coordinate on a global scale. The more isolationist approach of the Trump administration constitutes an even greater challenge. The raison d’être of the G7 stems primarily from its ability to make swift decisions and coordinate policies. If the like-mindedness on which it was always premised were to lapse due to the Trump administration, and if this were exacerbated by frictions in the relationship between the UK and the EU and its member states because of Brexit negotiations, the G7 may face difficult times in the coming years. In this era of anti-globalism and scepticism towards international cooperation, it is more than ever necessary that both the G7 and the EU are able to demonstrate that they continue to play an important role and that they are

The role of the EU in the G7  85 able to deliver on their promises and ambitions. Showing resilience and moving forward are the main ingredients to address these challenges. In order to carry out these tasks, the EU will need to show leadership. Whether it wants it or not, the current challenges posed by anti-globalism, nationalism and populism have put the EU in the driver’s seat of the G7. It is our hope that an EU-driven G7 may be able to deter some of the anti-globalist, nationalist and populist tendencies by making globalization work better for all.

Notes 1 In this chapter, we use the G7 when talking of the continuous summitry; the G8 is only mentioned when talking about specific events taking place during the time of the G8. 2 Other examples include the Association of South East Asian Nations (ASEAN) and the Caribbean Community (CARICOM). 3 The UK has triggered Article 50 of the Treaty of Lisbon in March 2017 and renegotiates its standing towards the EU by March 2019, after which the EU is expected to fall back to 27 member states. 4 Russia had been involved at previous G7 meetings. From 1994 onwards, Russian officials held separate meetings with leaders of the G7 members right after the G7 meetings. 5 For further details on the performance of the G7/8, one can check the compliance reports issued by the University of Toronto’s G7 information centre at www.g8.utoronto.ca/evaluations/index.html. 6 With values defined as ‘values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of persons belonging to minorities’ (Article 2 TEU). 7 EU Global Strategy, para. 39. 8 This stands in contrast to the G20, where the EU has full membership. 9 Some protests took place during earlier G8 summits as well, e.g. the Global Street Party taking place during the 24th G8 Summit in Birmingham. 10 To be accurate, Algeria left the European Communities in 1968 after gaining independence from France. Greenland did the same in 1985 after achieving autonomy from Denmark. Neither of these cases, however, can be seen as a relevant precedent. 11 http://uk.businessinsider.com/trumps-energy-review-kept-g7-nations-from-­ consensus-on-the-paris-agreement-2017-4?r=US&IR=T.

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5 G7 governance of climate change The search for effectiveness John J. Kirton, Ella Kokotsis and Brittaney Warren Introduction The challenge of climate change Controlling the world’s changing climate has become a critical and compounding challenge upon which the well-being and even survival of life on earth depends. At the 21st Conference of the Parties (COP 21) to the United Nations Framework Convention on Climate Change (UNFCCC) in Paris in December 2015, world leaders sought to produce an ambitious regime to prevent and adapt to climate change (Shelling 2002; UNFCCC 2015; Vihma 2014). It was hailed by France’s president Francois Hollande and United Nations (UN) secretary-general Ban Ki-moon as a resounding success. Yet it did not produce a globally binding agreement that was bold enough to meet the definitive consensus of the scientific community, even with its new, flexible, bottom-up approach to replace the UN’s old failed mandatory topdown approach. While national governments agreed on the need to keep the global temperature well below 2°C from pre-industrial levels, and ideally at 1.5°C, their voluntary Intended Nationally Determined Contributions ­(INDCs) were not enough to reach this target, even if fully implemented by each UN member state. At Paris, the UN failed. Producing an effective climate change control regime also requires leadership from the world’s preeminent political and economic powers operating within the Group of Seven (G7) major power democracies and the Group of 20 (G20) systemically significant states (Bayne 2000, 2005; B ­ ernstein 2000, 2001; Hajnal 2007; Kennan 1970; Kirton 2013, 2016; Kirton and Kokotsis 2015; Kirton and Larionova 2018). These groups must commit to bolder control measures, improve their compliance with these commitments and ultimately hold themselves accountable for delivering on these commitments before it is too late. Competing schools of thought The G7/8’s performance in doing so has long been the subject of successive generations of research (Kirton and Kokotsis 2015). The first came from George von Furstenberg and Joseph Daniels (1992) in the early 1990s.

G7 governance of climate change  91 Von  Furstenberg and Daniels identified high compliance with the G7’s closely related energy commitments from 1975 to 1989 and conjectured that such compliance was caused by a G7 members’ high relative capability and its leaders’ direct control of the legislature back home. Ella Kokotsis (1999, 2004) subsequently identified substantial and rising compliance with G7 ­climate change commitments from 1988 to 1995 by both the relatively small Canada and the large United States (U.S.) due primarily to a strong bureaucratic centre within the members’ government, a strong subject-­specific G7 ministerial forum and a dedicated multilateral organization outside. This attention to institutionalization was emphasized by James Barnes (1994: 1–2) who asserted that: [T]he G8 [Group of Eight] was a growing environment and climate governor but an implementation failure, due to its lack of a secretariat, the changing agenda of each host, and its trusting, unmonitored delegation of environmental issues to the World Bank and International Monetary Fund (IMF). (Kirton and Kokotsis 2015: 6) As the 21st century began, George Von Furstenberg (2008) cautioned that such leaders were likely to ‘overpromise’ on climate change but that this still raised compliance and implementation higher than would otherwise have been the case. Nikolai Roudev and Jenilee Guebert then found that G7 members’ compliance with their climate change commitments was higher if the latter contained particular compliance ‘catalysts’ under the leaders’ direct control (Kirton 2006). Specifically, compliance was higher if climate change was given priority placement in the leaders’ final communiqué, but lower if the commitment contained a reference to international law. Puzzles These studies on the causes of G7 compliance with its climate change commitments thus largely focus on the institutional features of these bodies, on the dynamics of the broader international system in which they ­operate and the institutional characteristics of their members’ political systems and governments at home. They rarely examine the independent effect of ­accountability measures that the summit leaders themselves collectively and directly control, that they can deploy at low cost, which they have ­recurrently used and that have worked in improving the compliance they presumably want. Purpose This study offers such an examination but within the broader context of the G7/8’s ability to effectively counter the central, most urgent and, indeed,

92  John J. Kirton et al. potentially existential threat from globalization – climate change. Its threefold purpose is, first, to chart the climate change commitments of the G7/8 summits since their start; second, to assess their members’ compliance with them; and third, to identify the causes of compliance, particularly those ­accountability measures that summit leaders directly control. To do so, it applies an accountability framework to identify the causal impact of six of the ten key accountability measures that summit leaders can use and improve. The argument This study argues that since the G7/8’s invention of the global governance of climate change in 1979, summit leaders have recurrently confronted and conquered surges in anti-globalization sentiment among the broader ­international community and within its own members’ states. ­According to John Kirton and Ella Kokotsis’ The Global Governance of Climate Change: G7, G20 and UN Leadership (2015), throughout this process, the G7/8’s ­performance on global climate initiatives has passed through three ­distinct phases: (1) leadership of an increasingly effective inclusive environment-­first regime from 1979 to 1989, (2) deference to the UN’s ineffective, s­ elective, development-­first regime from 1992 to 2004 and (3) a return to an i­ ncreasingly effective, G20-supported, inclusive, environment-first regime from 2005 to 2016. This third phase culminated at the 2015 Paris Summit, ­however, tainted by the real threat of a rapidly approaching and irreversible tipping point compounded by the election of U.S. president Donald Trump’s refusal to accept and act on the striking scientific facts of climate change. The central challenge of the G7’s May 2017 Taormina Summit was thus to ensure that G7 members complied with their still unfulfilled past climate commitments, including by adding and improving accountability measures and by activating assistance from the G20’s July 2017 Hamburg Summit. Yet at Taormina, the G7 largely failed. Faced with a divisive U.S., G7 leaders were unable to act effectively or collectively to counter climate change in any meaningful or decisive way. The next opportunity for the G7 to craft and comply with strong climate commitments will be at Charlevoix, Canada, in 2018. To take advantage of this opportunity, G7 leaders can look to their compliance history. In this regard, the authors argue that past G7/8 compliance with climate commitments has been higher when the commitments referenced a specified agent through which to implement the stated goal. Compliance was also higher when more companion commitments on climate change were made at the same summit, when the commitments were initially generated at the G7/8 environment ministers meeting, when post-summit support was offered by official G7/8 bodies and when UN summit support on those commitments was offered that same year. Conversely, compliance was much lower when there was a reference to a specific country or region in the commitment or to a specific reference to international law. Thus, to improve overall

G7 governance of climate change  93 compliance with its climate change commitments, the G7/8 should specify an agent through which to implement its goals, agree on climate companion commitments, offer post-summit support through official G7/8 bodies and convene regular environment and/or energy ministerial meetings. Contributions Through these findings, this study extends the rich scholarship on the implementation of formal, legal international environmental agreements by systematically charting the course and causes of the climate change commitments and compliance of informal soft law international institutions, above all the central global summits of the G7/8 since 1975 and its G20 ­companion arriving in 2008 (Breitmeier 2008; Haas 2002; Huang 2009). Second, it builds on earlier work assessing how global summits, delivered by national leaders uniquely responsible for governing and integrating all issues, actually connect climate change and closely related issues such as human health by pointing to links within a single policy field such as climate change (Kirton, Kulik and Bracht 2014). Third, it assesses how compliance with such climate change commitments can be improved by leaders through their use and improvement of low-cost accountability measures directly under their collective control. To do so, this study first examines the G7/8, exploring in turn its ­climate change commitments, compliance with those commitments and the impact of the accountability measures that could affect compliance. It then examines the G20 in a similar way, but includes energy commitments, as they are often closely related to climate change. It concludes by ­summarizing the key findings and suggesting how G7/8 and G20 leaders can increase the c­ ompliance they presumably want by improving those low-cost a­ ccountability measures which are under their direct control and have yielded clear results in the past.

Phases of G7/8 climate governance Phase 1: invention, 1979–1989 The collective global shocks brought about by the disruption in global oil supplies – and the subsequent spikes in oil prices – coupled with the devastating tanker spills of 1973 at Burrard Inlet, spurred the G7’s leadership in global climate governance. Meeting for the first time in Rambouillet France in 1975, the six summit leaders recognized that ‘our common interests ­require that we continue to cooperate in order to reduce our dependence on imported energy through conservation and the development of alternative sources’ (G7 1975). In 1976, with Canada now at the table, they noted the intention to use energy resources ‘rationally’ (G7 1976). The following year, with the European Community now added, summit leaders affirmed the value of ‘more efficient energy use’ (G7 1977). At the first German-hosted

94  John J. Kirton et al. summit, at Bonn in 1978, the leaders directly declared: ‘in energy development, the environment and human safety of the population must be safeguarded with greatest care’ (G7 1978). Then, with the second oil shock of 1979, compounded by the nuclear explosion at Three Mile Island in the U.S. that year, the G7 created in T ­ okyo a highly informal regime to control carbon emissions that was the most ­ambitious and effective ever seen. On June 28, at the conclusion of the summit, the G7 leaders declared their ‘need to expand alternative energy sources, especially those which will help to prevent further pollution’. In doing so, they specifically noted the harmful effects of increases in carbon dioxide and sulphur oxide levels in the atmosphere. They further acknowledged the need to halt immediately, at 1979 levels, the concentration of carbon dioxide in the world’s climate. The G7 thus recognized in 1979 that they had a collective global responsibility in taking a number of preventive and ambitious steps to control climate change before its potentially irreversible harmful consequences would move to levels beyond human control. Throughout the following 9 years, the G7 and other countries in the ­Organisation for Economic Co-operation and Development (OECD) moved in this desired direction, as their emissions of carbon dioxide into the a­ tmosphere ­ ustainable Energy began to show signs of notable decline (Barnes 1994: 42; S Development Center 2006). Then, at the Toronto 1988 G7 ­summit, the leaders recognized the necessity of embracing the broader global c­ ommunity in the climate debate and called for ‘the establishment of an inter-­governmental panel on global climate change under the auspices of UNEP and the World Meteorological Organization (WMO)’ (G7 1988). I­ mmediately following the summit, Toronto hosted the first-ever global ‘Conference on the Changing Atmosphere’. Bringing together over 300 international scientists and policy makers from 46 countries, this G7-inspired conference ‘became a seminal moment in putting climate change on the global agenda’. The momentum from Toronto resulted the following year at Paris into what the media heralded a ‘green’ summit, with environmental issues dominating the leaders’ discussions and consuming one-third of the final communiqué (Kirton 1988, 1993; MacNeill, Winsemius and Yakushiji 1991). In their introductory statement, the leaders spoke of ‘the urgent need to safeguard the environment for future generations’, further acknowledging that the protection of the environment required a ‘determined and concerted international response’ (G7 1989). Regarding climate mitigation more specifically, the leaders noted that the depletion of the stratospheric ozone layer ‘is alarming and calls for prompt action’. They called for the conclusion of a framework convention on climate change that would ‘set out general principles or guidelines’ and contain ‘concrete commitments’, thereby setting the course for the soon-to-be UNFCCC process (G7 1989; see also Kokotsis 1999). The G7’s role in global climate governance during this first phase stands in sharp contrast to the historic absence of any powerful global intergovernmental organization dedicated to the control of climate change. The UN’s

G7 governance of climate change  95 charter, and subsequent amendments, was notably silent about the ­existence, let alone the value, of the natural environment (UN C ­ harter 1945). During this initial period, the UN system lacked any functional ­organization to deal with either energy or the environment overall, beyond the fragile United ­Nations Environmental Programme (UNEP) created in 1972 (­ Biermann and Bauer 2005; Kirton 2005). The Atlantic system of international organizations, centred in the North Atlantic Treaty Organization and the OECD, generated only the International Energy Agency (IEA) in 1974. The global community was thus institutionally defenceless, as the oil shocks of 1973 and 1979 hit, stemming from OPEC’s assault on the global economy. When George Kennan (1970), one of the world’s leading pioneers of the post–World War II order, called for a new powerful plurilateral institution to meet these ecological challenges, only the G7 responded to the call. Phase 2: retreat, 1992–2004 The G7’s leadership on global climate governance witnessed a period of r­ etreat beginning in 1992, favouring instead the new but divided UN regime. A slight surge came just prior to 1992, when the G7 was able to effectively catalyse the multilateral climate regime that would be created in Rio in June 1992 (Kokotsis 1999). But here, under the UNFCCC, only the existing industrial powers of the OECD were obligated to control their carbon emissions, with developing countries’ obligation conditional on financial and technical support from the developed ones (UNFCCC 1992). The G7 was also able to successfully convince another reluctant U.S. president, George H. Bush, to not only attend the UN Conference on Environment and Development (UNCED) in Rio in 1992 but also deliver a speech in which he promised that the ‘United States will work to carry forward the promise of Rio’ (US Department of State Dispatch Supplement 1992). Meeting in Munich just 1 month after UNCED, G7 leaders agreed that the Rio Summit represented a ‘landmark in heightening the consciousness of global environmental challenges and giving new impetus to the process of creating a worldwide partnership on development and the environment’ (G7 1992). But along with the success of UNCED came the recognition that if Rio was to have any lasting significance, the international community had to act collectively to implement the conventions created there. G7 leaders at Munich thus stressed the importance and urgency of carrying the momentum forward and agreed on several immediate measures to follow up, most notably on the ratification of the climate change convention by all G7 members by the end of 1993 (G7 1992). The retreat continued, following the 1992 Munich Summit, as attention to environmental issues by the G7 diminished. This was due in part to the flourishing of the UNCED at Rio in 1992 and the institutions and processes it spawned, thereby allowing the G7 to leave global environmental issues to the broader UN multilateral system. Moreover, the G7 was newly

96  John J. Kirton et al. preoccupied with providing assistance to the once communist countries in Central and Eastern Europe and the former Soviet Union (Kokotsis 1999). This preoccupation continued through to the 1997 ‘Denver Summit of the Eight’, which was designed to present Russia’s Boris Yeltsin as a full summit participant, but saw climate change emerge as a major issue in the lead-up to the completion of the Kyoto Protocol later that year (G8 1997). Subsequently, the 1998 Birmingham, 1999 Cologne, 2000 Okinawa and 2001 Genoa summits paid only modest attention to climate and the environment. The 2002 Kananaskis Summit gave climate change no attention at all, outside of a peripheral reference in the G8 African Action Plan (G8 2002). While Evian 2003 restored the environmental agenda to a prime position, the climate component virtually disappeared at Sea Island in 2004 (G8 2003, 2004). Phase 3: restoration, 2005–2016 The G7/8’s governance of climate change surged again to new heights during the post–Hurricane Katrina/Asian tsunami period from 2005 to 2009. With the UN’s failure to globally ratify Kyoto by 2005, the G7/8 now reached out to involve emerging powers through the Gleneagles Plus Five process in 2005 and the Major Economies Meeting on Energy Security and Climate Change (MEM) in 2008–2009, an initiative which would see the G7/8 ­pioneer a regime beyond Kyoto in which all existing and emerging powers would control their own carbon emissions. A significant turning point came at the 2005 Gleneagles Summit, where UK host Tony Blair made climate change one of the two major summit priorities and brought together the world’s largest emerging economy emitters (Brazil, China, India, Mexico and South Africa) through the G ­ leneagles Plus Five process (G8 2005). It was here that the G7/8 gave up on the UN-centred COP/MOP process and took back the reins of climate change control. It did so by placing climate change and clean energy in the opening chapeau of the leader’s final communiqué, a move marking the significance of these issues to the G7/8. Moreover, the leaders created, for the first time, a stand-alone summit document dedicated solely to clean energy and c­ limate change. ­ iscrete Within its 38 paragraphs, the Gleneagles Action Plan made 29 d ­commitments on climate change, clean energy, fossil fuels and renewables. This was more than double the number of climate commitments made by the G7/8 to date. And finally, in an unprecedented move, each G7/8 member attached their signature to the final communiqué, confirming in writing, their commitment to fulfilling the promises they had pledged (G8 2005). Summit host Tony Blair is credited with confronting the Americans who stood alone against all other G7/8 members as the only country not to have ratified the Kyoto Protocol. He successfully persuaded George W. Bush to a­ ccept a new climate change regime that would effectively move ‘beyond Kyoto’ to ­ okotsis  2015: 185). include all existing and emerging powers (Kirton and K Gleneagles thus marked the emergence of a new consensus among the G7/8

G7 governance of climate change  97 members on both the importance and urgency of the effects of a changing global climate on a number of interrelated levels, including energy, health, security and the global economy. From 2005 to 2009, the G7/8’s focus on climate shifted from reacting ­defensively to becoming more proactive in the development of governance regimes that would deal with climate issues more innovatively. The ­UNFCCC and Kyoto’s failure in containing the world’s largest carbon ­emitters – led by China – induced the G7/8 to embrace these actors in more inclusive, burden-sharing ways. By bridging the efforts of G7/8 energy ministers as well as carbon-consuming and producing countries through G7/8-­c entred bodies, the leaders put in place more comprehensive and inclusive initiatives to further institutionalize the process by which these actors would consolidate their climate mitigation efforts. An important example of this was through the creation of the MEM in 2008. Meeting at the end of the G7/8’s 2009 L’Aquila Summit, and now calling their gathering the Major Economies Forum on Energy and Climate (MEF), the 17 leaders stated that climate change presented a ‘clear danger requiring an extraordinary global response’, noting further the criticality of moving to a low-carbon economy that would include low-cost alternative clean energy technologies (MEF 2009). They further affirmed they would work together ‘to identify a global goal for substantially reducing global emissions by 2050’. Only with the evident failure of the UN regime to work by 2005, and the frustration at the Copenhagen COP/MOP in 2009 to reach any ­meaningful consensus, did the G7/8 reassume the lead in governing global climate change. It did so by involving the other consequential energy and carbon producers in a balanced and G8-guided way at the summit and ministerial levels, initially through the MEM/F and then letting leadership pass to the new leaders-level G20 summit in 2008. In doing so, it pioneered an alternative regime to the UNFCCC, in which all global powers agreed to control their carbon emissions in increasingly effective ways. The G20 was able to add the Kyoto-unconstrained energy producers of Saudi Arabia, Australia and Indonesia to the G8 Plus Five, as well as numerous emerging demand powers (e.g., India, Turkey, Mexico) within the next tier. Initially limited in scope, climate change was an issue from the start of the G20’s leaders’ meeting in Washington, DC, in 2008, securing more attention at London in April 2009, peaking at Pittsburgh in September 2009, and then receding somewhat at Toronto and Seoul in 2010. But by 2010, climate change had become a joint venture of both the G8 and the G20, as the earlier MEM/F summit process began to die out (Table 5.2). Beginning at the Cannes Summit in 2011, the G20 began to take up a number of climate change initiatives within the broader context of green growth. For the first time, the G20 collectively mobilized support for innovative financing for climate change and committed to promoting low-carbon development strategies in order to optimize the potential for green growth. Here, the G20 also stressed the relationship between energy and climate,

98  John J. Kirton et al. devoting a stand-alone section of the final declaration to the enhancement of energy markets through ‘improved energy efficiency and better access to clean technologies’ (G20 2011). The G20 continued to address energy directly and integrate it with environmental and climate concerns the following year in Los Cabos, where the leaders committed to phasing out ‘inefficient fossil fuel subsides that encourage wasteful consumption’. Here, they also created the first-ever G20 study group on climate finance to consider ways to mobilize resources to help ‘transform economies towards a climate-friendly path’ (G20 2012). And at the 2013 St. Petersburg Summit, G20 leaders devoted more than 10% of their final declaration (13 of 113 paragraphs) to sustainable energy policy and the fight against climate change. Their most prevailing commitment came in the context of a post-Kyoto control regime, where the G20 agreed to work toward ‘the successful adoption of a protocol, another legal instrument, or an agreed outcome with legal force under the convention applicable to all Parties by 2015’ (G20 2013). As the joint venture between G8 and G20 leaders continued throughout this period, each summit addressed climate change and mitigation efforts in varying degrees. Meeting in Lough Erne, Northern Ireland in 2013, the G8 leaders noted they would pursue ‘ambitious and transparent action’ on climate change through various international forums, including the MEF, the International Civil Aviation Organization and the International Maritime Organization (G8 2013). Moreover, in recognizing its members’ commitment to the Climate and Clean Air Coalition, the G8 formally acknowledged that climate change is ‘a contributing factor in increased economic and security risks globally’. They reiterated the pledge made by developed countries at Copenhagen to jointly mobilize $100 billion of climate finance per year by 2020 through a ‘wide variety of sources’ (G8 2013). And at their summit in Brussels in 2014, the G7 – now again minus ­Russia – identified energy security as a key summit priority, noting clearly at the outset that the use of energy supplies as a means of threatening global security was ‘unacceptable’. The crisis in Ukraine highlighted the leaders’ conviction that diversifying the global supply of energy had to be at the centre of their collective agenda. The G7 thus committed to implement concrete domestic policies to build ‘a more competitive, diversified, resilient and low-carbon energy system’ based on the principles agreed to by their energy ministers in May in Rome. Based on these principles, the G7 leaders acknowledged they would take concrete actions to facilitate exchanges with Ukraine on ­renewable energies and energy efficiency, encourage the use of low-carbon technologies (and nuclear energy in the countries that opt to use it) and ­promote a more integrated market for liquefied natural gas. The leaders also tasked the IEA to present a list of options for individual and collective actions in the field of gas security. Finally, the G7 tasked their energy ministers to report back to them on progress made in each of these issue areas by the time of their next summit meeting in Germany in 2015 (G7 2014).

G7 governance of climate change  99 In Brussels, G7 leaders also clearly recognized the link between energy security and climate change, noting that reductions in greenhouse gas emissions and a move to a low-carbon economy were both necessary for energy security. They committed to doing their part to limit the increase in global temperatures below 2°C above the pre-industrial average (G7 2014). They further noted their collective commitment in support of a ‘new protocol in 2015, another legal instrument or an agreed outcome under the convention with legal force applicable to all parties’ (G7 2014). Regarding fossil fuel subsidies, the G7 confirmed its commitment to their elimination and noted its intent to improve the measurement, reporting, verification and accounting of carbon emissions, consistent with those agreements within the UNFCCC (G7 2014). Although no new money was pledged for energy and climate change in Brussels, the G7 reaffirmed its prior commitment to mobilize an additional $100 billion per year by 2020 from both private and public sources aimed at mitigation and adaptation needs in developing countries (G7 2014). Leading up to their summit meeting in Schloss Elmau in June 2015, host German chancellor Angela Merkel made climate change a key ­summit theme. During her visit to Tokyo on 9–10 March 2015, Merkel highlighted ­climate change and the forthcoming Paris conference by noting that ­Germany ‘want[s] to work with our G7 partners to prepare initiatives that will show that the G7 states are ready to take on a leading role in low-­carbon development. We want to make clear that this does not mean having to sacrifice prosperity’ (Germany 2015). Germany, along with France, further aimed at pushing their G7 partners to announce their INDCs prior to the 2015 summit, as the U.S., Canada and the EU had done. And as host of the Paris conference in December 2015, French president Francois Hollande was ­expected to push hard for more climate finance from his summit partners. By early May 2015, the G7 was still searching for ways to send a strong political signal on climate change, given that not all major emitters would be present at Schloss Elmau. Although there was strong European s­ olidarity on the issue, U.S. congressional limitations, along with ­Canadian federal-­ provincial-territorial issues, were seen as major points of potential concern in reaching a consensus on climate change language at the summit. But as summit leaders gathered in Bavaria, climate change became one of the leading discussion points, with the G7 agreeing to a number of significant climate commitments. The G7 repeatedly affirmed that the basis of a new UN climate regime in Paris would require that all major emitters must control their carbon. Here, the G7 echoed the tone set by summit host Angela Merkel in an interview just three days prior to the summit when she said: ‘we can’t deal with the climate issue and meet the two-degree target … on our own, without emerging economies such as India and China’ (CBC Interview 2015). Summit leaders also reaffirmed in Bavaria that global temperatures must not rise beyond the dangerous 2°C threshold and thus agreed that in the

100  John J. Kirton et al. medium term they would reduce their emissions at the upper range of the 40%–70% recommended by the Intergovernmental Panel on Climate Change. In addition, they added a long-term decarbonization target in the global economy by the end of the century, aimed at zero emissions (G7 2014, 2015). Moreover, a new G7 initiative was unveiled at Schloss Elmau and endorsed by summit leaders on Climate Risk Insurance. The initiative was aimed at increasing the resilience of developing countries against climate-induced and other natural disasters, which have caused economic losses estimated at around US$190 billion annually in the last decade (G7 2015). The G7 argued that this type of initiative offered an important opportunity to include insurers into the core architecture of sustainable development. They argued that by acting as risk managers and investors, insurers were uniquely positioned to provide financial protection for vulnerable communities. Hopes ran high that this G7 initiative would finally align the insurance industry with the global development agenda by promising to insure upwards of 400 million people by 2020 against climate disaster risk (G7 2015). And finally, the G7 reaffirmed at Schloss Elmau their commitment to raising the promised US$100 billion a year in climate finance, both from private and public sources, declaring that these funds would be earmarked for mitigation in those countries seriously committed to reducing their greenhouse gas emissions (G7 2015). In all, constructive efforts were made to tackle the increasing threat of a changing global climate. By contrast, summit leaders gathering in Ise-Shima, Japan, in 2016, did very little to generate concrete commitments on climate change control. ­Although they pledged to take a leadership role and ratify or approve the Paris Agreement ‘as soon as possible’, they set no date to do so and failed to report on their efforts in the ensuing year. And although they pledged to formulate their ‘low greenhouse gas emission development strategies well ahead of the 2020 deadline’, agreeing only to take stock of their collective progress 5 years from then. In addition, no new monies were offered on climate finance, rather a reiteration of the previous promise to mobilize US$100 billion annually by 2020. Most disappointingly, they took a big step backward on fossil fuel subsidies, promising to eliminate them only a decade later than the G20. And there was no mention on the need to kill coal, as Canada and the United Kingdom (UK) had already done.

Impact of the 2017 Taormina G7 and Hamburg G20 summits The 2017 Taormina Summit succeeded in demonstrating that G7 leaders were on track to sustaining globalization by moving it in a more socially inclusive direction. It did so by effectively placating the protectionist disposition of Donald Trump at his first global summit by demonstrating strong action on gender equality, social development, migration and support for the UN’s 2015 Sustainable Development Goals (SDGs). Its greatest failure, however, came in finding solutions to effectively mitigating and countering the most urgent threat from globalization – climate change.

G7 governance of climate change  101 Although divisions ran deep between Trump and his summit partners on climate change, energy security could have been the one issue that bound the leaders together at Taormina and later at Hamburg. In the lead-up to the release of the final G7 communiqué on 27 May 2017, speculation ran high about just how far Trump could be persuaded to shift his previously held position on climate change and energy security, if at all. And with Trump’s daughter Ivanka claiming to use her spotlight as ‘first daughter’ to influence climate change in a positive way, there was room for optimism that climate change and energy security would not be completely side-lined in Taormina as many expected. The outcome, however, fell drastically short. References to energy security remained vague and void of any firm targets, timetables or commitments to monetary disbursements. More disappointing yet was the text on climate change, which, for the first time ever in a G7/8 communiqué, had one member single itself out against its G7 partners, as all but the U.S. committed to ‘swiftly implement […] the Paris Agreement’. And just 1 week later, Trump demonstrated to the world that abstinence won over balanced decision-making when he announced on 1 June in the Rose Garden of the White House that the U.S. would withdraw from the Paris climate accord. International response to Trump’s decision was swift and decisive. Leaders around the world were quick to condemn his decision while reaffirming their own commitment to the climate agreement. Domestic response was equally stalwart, as leading American politicians, mayors and business magnates argued that Trump’s decision was reckless and would cost – not create – American jobs. Trump remained characteristically undeterred when, 1 month later at the G20 in Hamburg, he participated in his first diplomatic gathering of the world’s leading greenhouse gas emitters since his announcement to withdraw from the Paris Accord. He isolated himself entirely from his 19 summit partners when he refused to sign onto the G20 Hamburg Climate and Energy Action Plan for Growth. In an unprecedented move, the final G20 declaration referenced the U.S. decision to withdraw from the international climate agreement by stating that ‘We take note of the decision of the United States of America to withdraw from the Paris Agreement’. The declaration further affirmed that the U.S. would ‘endeavour to work closely with other countries to help them access and use fossil fuels more cleanly and efficiently’ (G20 2017).

G7/8 climate change commitments The annual G7/8 summit produced 368 climate change commitments since the issue first directly appeared on the leaders’ summit agenda at Bonn in 1985 through to 2017 (Table 5.1). Until 2005, the G7/8 generated relatively few climate change commitments, peaking at the 1997 Denver Summit with nine. However, from 2005 to 2009, the annual number soared, peaking at the 2008 Hokkaido-Toyako Summit with 55. The number of climate change commitments made then fell for the next 3 years, subsequently reviving until Taormina in 2017 when just one commitment was generated by summit leaders.

1

1

1

1

1

1

1

1

1

1 1

1

1

2

1 1

1

3

3 2

3 3

7 2

1

1

2

4

1

2

1

1 3

1

7

2

8

2

2

5 3

1

1

3

4 1

1

5

1

2 1

1

7 1

1 6

2 1

24

2

19 17

1

3 1

17 1

1 3

1 1

1

1

1 1

2

1

1

2

1

1

2

1

1 2 2 1

Total

1

2017

1

2016

3

2015

3

2014

2013

3

1

1 1

4

2 1

1

2

4 3 1

1

2006

2005

2004

2 1

1

1

1

2012

3

2011

1

3 1

2010

2

1

2009

1

1

2

2003

2002

2001

1

2000

1999

2

1 3

1

1

2008

1

1998

1996

1995

1994

1993

1992

1991

1989

1990

1

2007

Greenhouse gases Sustainable development UNFCCC Climate change National action plan Forests International cooperation Conference of the Parties Transport Financing Research/ Science Assist developing countries Mitigation Energy Post-Kyoto Global Environment Facility

1

1997

Emissions reductions Technology

1987

1985

Table 5.1  G7/8 climate change commitments by subject

1 2

1 3

1

16 16 15 14 13 12

4

12 11 11

5

11

2 2

11 11 10 9

Carbon capture and storage Funding least developing countries Market/Business Reports/ Planning Kyoto Protocol Adaptation Methodological issues Sequestration/ CSLF International conferences Gleneagles Dialogue Hydrocarbons Rio conference Trade Renewable energy GEOSS Monitoring CSD Paris Agreement Energy security Common but differentiated responsibility Nationally determined contributions Post-2000 initiatives Polluter-pays principle

2

3

1

2

1

3 2

1 1

1

1

1

2

1

1

1

1

3 2

2

1

2 1

1

3

1

1

1

1

3

2

1

1

1 1 2

9

1

1

1

1 2 1 2

1

7 7

5

7 6 6

2

1

5 5 3

1 1

2

1

1

2

5 4 4 4 2 3

2 2

1

7

5

2

1

1 1

2

1

4 4 3 3 2 2 2 1

1

1 (Continued)

1

1 1

1 1

1 1 1

1 1 1 1 1

1 1 1

1 1 1

1 1

1

1 1

1

1

1 1 4

7

Total

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1987

1985 Global warming Development country technology Monitoring Awareness Dialogue GCOS Major economies join Sharing practices Pollution Sectoral approach Mid-term goals Copenhagen Accord Sinks Environmental problems WMO network Total 1

1 1 5

8

4

4

7

3

9

8

4

2

8

1

4

3

30 21 49 55 43 11 7

5

12 16 23 12 1

1 368

Note: CSD = Commission on Sustainable Development; CSLF = Carbon Sequestration Leadership Forum; GCOS = Global Climate Observing System; GEOSS = Global Earth ­Observation System of Systems; UNFCCC = United Nations Framework Convention on Climate Change; WMO = World Meteorological Organization.

G7 governance of climate change  105 The 368 climate change commitments generated at these 32 summits spanned 53 distinct issues. These were led by emissions reductions at 24; technology at 19; sustainable development and greenhouse gases at 17 each; and the UNFCCC and general references to climate change at 16 each. A single commitment was made on the Copenhagen Accord, mid-term goals, sectoral approaches, pollution, major economies join, the Global Climate Observing System, awareness, dialogue, monitoring, developing-country technology, global warming, polluter pays, post-2000 initiatives, carbon sinks, the World Meteorological Organization network and other environmental problems. The more general value or goal-based subjects dominated prior to 2005, and the more specific technology and energy-based commitments dominated post-2005.

G7/8 climate change compliance G7/8 members complied with these commitments at an average of +0.46 on the scientific scale (with −1.00 assigned for non-compliance up to +1.00 assigned for full compliance) or 73% on the popular scale (Table 5.2). Of these 368 climate change commitments, 82 (or 16%) were assessed for compliance during the following year, using the method and data sets of the G7 Research Group based at the University of Toronto (Kirton, Kokotsis and Guebert 2016). There are several phases of compliance, but no strong trends. C ­ ompliance was higher in 1992–1994 and 2002–2005, but lower in 2006–2009. The h ­ ighest score of +1.00 came in 1998 and the lowest of −0.22 came in 1999, after −0.07 in 1989 and −0.11 in 1990. Higher compliance seems to arise over m ­ ultiple summit sequences, with lower compliance centred on a single summit or two at the most. Indeed, average compliance from 2014 to 2016 was a high +0.70 or 85%. Across the major issue areas addressed by the G7/8, climate change compliance at +0.46 ranks below the overall issue average of +0.51. ­Compliance is highest on the issues of macroeconomic and social policy at +0.71 each, information and communications technology at +0.70, human rights at +0.69, energy at +0.64, regional security at +0.62, terrorism at +0.61 and the environment, democracy, financial crisis regulation, food and agriculture, labour, health, conflict prevention and nuclear safety with average compliance ranging from +0.50 to +0.57. All G7/8 members complied with their climate change commitments in the positive range. The EU led with +0.81. The next highest compliance came from the European countries of the UK at +0.65 and Germany at +0.62. This was followed by their non-EU peers of Japan at +0.51 and  Canada at +0.48. The countries with below average compliance scores were France at +0.42, the U.S. at +0.38, Russia at +0.19 and Italy at just +0.10.

Table 5.2  G7/8 compliance on climate change Commitment # (N = 74)

Canada France Germany

Italy

Japan

1985-1 1987-32 1989-21 1989-22 1989-3 1989-4 1990-26 1990-27-28 1990-29 1990-36 1991-1 1991-4 1992-5 1992-2 1992-6 (?) 1993-6 1993-3 1994-1 1994-3 1995-23 1996-87 1997-8 1997-9 1998-32

0 +1 +1 −1 −1 +1 +1 +1 −1 −1 +1 +1 +1 +1 +1 +1 +1 +1 +1 +1 0 0 −1

0 0 0 −1 +1 −1 +1 −1 −1 −1 0 +1 0 +1 0 0 +1 0 0 0 0 −1 0

0 0 +1 +1 +1 0 0 +1 0 −1 0

+1 0 0 −1 −1 0 +1 +1 −1 −1 0 +1 0 +1 +1 −1 +1 0 +1 0 0 +1 +1

+1 0 +1 −1 0 0 +1 +1 +1 −1 +1 +1 +1 +1 +1 −1 +1 +1 +1 −1 +1 +1 +1

+1 +1 +1 +1 +1 0 +1 0 +1 +1 0

Russia United Kingdom

+1 −1 +1

0 +1 +1 +1 −1 +1 0 +1 +1 −1 0 +1 +1 +1 0 0 +1 +1 +1 +1 +1 +1 +1

United States

European Union

Average

+1 0 −1 −1 −1 −1 −1 −1 −1 −1 −1 −1 +1 −1 +1 +1 +1 +1 +1 +1 +1 0 −1 +1

+1

+0.50 +0.29 +0.43 −0.43 −0.29 0 +0.43 +0.43 −0.29 −1.00 +0.14 +0.67 +0.71 +0.71 +0.71 +0.14 +1.00 +0.57 +0.86 +0.29 +0.57 +0.50 +0.11 +1.00

+1

1998-34 1998-35 1999-32 2000-86 2001-xx 2001-xx 2001-xx 2001-44 2002-8 2003-75 2003-92 2004(s)-3 2004-S2 2005-18 2005-1 2005-2 2005-158 2005-15 2006-62 2006-99 2006-110 2006-116 2006-123 2006-138 2006-156 2006-162 2006-165 2007-28 2007-35 2007-36 2007-44

+1 +1 0 0 0 0 +1 0 +1 0 +1 +1 +1 0 +1 +1 +1 +1 0 0 +1 +1 0 −1 +1 0 −1 0 +1 +1 0

+1 +1 0 0 0 0 0 0 +1 +1 +1 +1 +1 +1 +1 +1 +1 +1 0 0 +1 0 −1 0 0 +1 0 0 +1 0 0

+1 +1 0 +1 0 0 +1 0 +1 +1 +1 +1 +1 +1 +1 +1 +1 +1 0 0 0 +1 +1 0 +1 +1 0 0 +1 0 +1

+1 +1 −1 +1 0 0 0 0 +1 +1 +1 +1 0 −1 +1 0 +1 +1 0 0 −1 0 0 0 +1 +1 0 −1 +1 0 0

+1 +1 +1 +1 0 0 −1 0 +1 +1 +1 +1 +1 0 +1 +1 0 +1 0 0 +1 0 +1 +1 +1 +1 0 +1 +1 +1 +1

+1 +1 −1 0 −1 0 0 0 +1 +1 +1 +1 0 +1 +1 +1 −1 +1 0 +1 0 0 0 −1 +1 0 0 −1 +1 0 0

+1 +1 −1 0 0 0 0 0 +1 0 +1 +1 +1 +1 +1 +1 +1 +1 +1 +1 −1 0 0 +1 +1 +1 +1 +1 +1 +1 +1

+1 +1 +1 0 0 0 0 0 0 +1 +1 +1 +1 0 +1 +1 +1 +1 0 0 −1 +1 +1 +1 +1 +1 −1 +1 +1 +1 +1

−1 +1

+1 +1 +1 +1 +1 +1 +1 +1 +1 +1 +1 −1 +1 +1 +1 +1 +1 +1 +1 +1 0 +1

+1.00 +1.00 −0.22 +0.44 −0.13 0 +0.13 0 +0.89 +0.75 +1.00 +1.00 +0.78 +0.44 +1.00 +0.89 +0.67 +1.00 +0.22 +0.33 −0.11 +0.44 +0.33 +0.22 +0.89 +0.78 0 +0.22 +1.00 +0.44 +0.56 (Continued)

Commitment # (N = 74)

Canada France Germany

Italy

Japan

Russia United Kingdom

United States

European Union

Average

2008-27 2008-55 2008-72 2008-251 2008-265 2009-49 2009-64 2009-66 2009-73 2009-98 2010-26 2010-27 2010-55 2011-51 2012-29 2013-145 2013-150 2014-44 2014-49 2015-33 2015-187 2015-188 2015-192 2016-25 2016-166 Average

+1 +1 +1 0 +1 +1 +1 +1 0 +1 −1 0 +1 +1 +1 +1 −1 +1 0 0 0 0 +1 +1 0 +0.48

+1 +1 −1 −1 −1 +1 +1 +1 0 −1 0 −1 +1 0 −1 0 −1 −1 0 +1 0 +1 -1 +1 0 +0.10

+1 +1 +1 −1 +1 +1 +1 +1 +1 +1 −1 −1 +1 +1 0 −1 0 0 0 0 -1 0 +1 +1 0 +0.51

0 +1 −1 0 0 0 +1 0 0 −1 +1 0 0 +1 −1 +1 −1 s

+1 −1 +1 −1 +1 0 +1 +1 +1 0 −1 0 +1 +1 0 +1 0 +1 +1 +1 +1 +1 +1 +1 0 +0.38

+1 +1 +1 +1 0 0 +1 +1 +1 +1 +1 0 +1 0 +1 +1 +1 +1 +1 +1 +1 +1 +1 +1 0 +0.81

+0.89 +0.78 +0.33 +0.11 +0.56 +0.67 +1.00 +0.89 +0.67 0 +0.22 −0.22 +0.78 +0.67 +0.11 +0.56 −0.11 +0.63 +0.63 +0.75 +0.50 +0.75 +0.63 +1.00 0 +0.46

+1 +1 −1 +1 +1 +1 +1 +1 +1 −1 +1 0 +1 +1 0 0 0 +1 +1 +1 +1 +1 +1 +1 0 +0.42

Note: N = total number of commitments assessed.

+1 +1 +1 +1 +1 +1 +1 +1 +1 −1 +1 0 0 0 +1 +1 +1 +1 +1 +1 +1 +1 0 +1 0 +0.62

+0.19

+1 +1 +1 +1 +1 +1 +1 +1 +1 +1 +1 0 +1 +1 0 +1 0 +1 +1 +1 +1 +1 +1 +1 0 +0.65

G7 governance of climate change  109

Causes of G7/8 climate change compliance The causes of such compliance are numerous and complex. They include those from the international system and the domestic structure and politics of member governments, as the concert equality model of G7 governance suggests (Kirton 1993; Kirton and Kokotsis 2015). They also include several accountability measures that G7 leaders directly control and have used in the past. Six are assessed here: catalysts contained within the commitment, companion commitments on the same subject at the same summit, iteration of such commitments at subsequent summits, ministerial reinforcement, official body support and multilateral organizational support from the periodic UNFCCC summits. Commitment catalysts The first accountability measure consists of the catalysts embedded within each commitment, as these lie under the immediate, direct and collective control of leaders who approve the precise wording of the commitments made in the final summit communiqués. Such catalysts provide precise, ­future-oriented, politically obligatory guidance about how to act on, implement or comply with the commitment. (Kirton, Kokotsis and Guebert 2016). Twenty-three catalysts have been identified, some of which act as inhibitors, decreasing rather than increasing compliance (see Box 5.1 and Table 5.3).

BOX 5.1 LIST OF COMPLIANCE CATALYSTS   1 Priority placement (PP): A commitment is highlighted in the preamble or is stated in the chair’s summary is given a priority placement. Leaders may issue several collective documents only one of which might be an overall summary or statement of purpose; this document becomes the equivalent of the preamble in a single document.   2 Past reference to summit (PPS): This refers to commitments that mention past summits. They are considered iterations.   3 Past reference to ministerial (PPM): This refers to commitments that mention past ministerial meetings.   4 Target (TA): A commitment refers to a set goal, percentage or numerical allocation is considered a target. It does not include time targets, which are considered time tables. It does include statements to fully implement a defined initiative because ‘fully’ can be translated as 100%.   5 Timetable single-year (TS): When a commitment refers to a time target, it is considered to include a time table. This can be short

110  John J. Kirton et al.

  6

  7

  8   9

10

11 12

13

14 15

16

term (1 year or less) or long term (more than 1 year). Some may include both short- and long-term break downs. Timetable multi-year (TM): When a commitment refers to a time target, it is considered to include a time table. A long-term timetable is more than 1 year. Some may include ‘by the next summit’, ‘by 2015’ and specific dates. It also includes references to words and phrases such as the Millennium Development Goals (MDGs), which include well-known time targets. Self-monitoring (SM): These refer to commitments where the institution in question pledges to monitor their actions on the said commitment. They could pledge to ‘monitor’ or provide a report, to follow up on said promises. Remit mandate (RM): These include commitments that refer to future assessment by leaders of progress made on a commitment, most often at a future summit. Money mobilized (MM): When a commitment refers to funds or a set dollar value it is considered money mobilized. It is also money mobilized when there is a commitment to ‘increase financial support’ to a specific issue. Specified agent (SA): A commitment that refers to a specific agent through which it will work with is considered to involve an agent. Even if the agent is not capitalized but the text describes a known particular thing, it is included as a specific agent. Also if the commitment generally refers to an agent to implement a specific action. Institutional body (IB): A commitment that refers to an institution that was created by the summit level body to deal with the particular issue area. Core international organization (CIO): When a commitment refers to a separate international organization (as an organization) that has a particular focus on the issue in the commitment at hand. When the organization is mentioned by name in relation to implementing an initiative under their control. Other international organization (OIO): When a commitment refers to a separate international organization (as an organization) that is not the core international organization for the issue in the commitment at hand. Regional organization (RO): When a commitment refers to a regional organization. International law (IL): International law includes both general references to international law and references to specific legal instruments (e.g., Kyoto). Codified law and customary law are included. Ministers (Min) Commitment refers to a group of ministers.

G7 governance of climate change  111 17 International organization accountability request (IOAR): Refers to commitments that ask international organizations to monitor the groups’ compliance with the commitment. 18 Civil society (CS): Commitments that make general reference to working with civil society. 19 Private sector (PS): Commitments that make general reference to working with the private sector, public-private partnerships, business (including the pharmaceutical industry). 20 Country or regional specification (C/RS): Commitments that make references to working with or in a particular country or region, such as Africa. 21 Surveillance (SUR): The commitment requests for the action or issue to be monitored in order to collect data. 22 International organization surveillance (IOS): The commitment requests a specific international organization to monitor the issue, not the implementation of the commitment but to provide data collection in a specific area. 23 Core/other international organization (C/OIO): When a commitment refers to both the core and other international organizations. Note: Definitions taken from J. Kirton et al. (2015) Reference Manual for Summit Commitment and Compliance Coding. To identify the potential effect of each catalyst on individual members and G7/8 average compliance, a multiple regression analysis was conducted on the 23 catalysts over the 74 assessed commitments. Only two catalysts significantly impacted average compliance. The first specified agent had a high, positive effect on compliance at +0.73. If G7/8 leaders identified a particular agent as the means through which the commitment would be implemented, such as the private sector or civil society, compliance increased. In contrast, the second catalyst of country/regional specification was a very strong inhibitor, with an impact of −0.94. This may be a result of the fact that many of the countries or regions named in the commitment lie outside of the G7/8 club and thus the actions required for compliance may also lie outside of the G7/8 leaders’ direct political control. These countries or regions were often unaware of, and did not feel bound by, the summit’s commitments, expectations or demands, especially if their leaders were not invited to attend the summit that generated them. Moreover, given that climate change is a global problem, needing a global solution, having a commitment focused on a single geographic area while excluding all others, especially in regard to mitigation, proved to be an ineffective approach.

Past reference to summit

Past reference to ministerial

Targets

Time table: single year

Time table: multi-year

Self-monitoring

Remit mandate

Money mobilized

Specified agent

Institutional body

Core international organization

Other international organization

Regional organization

International law

Ministers

International organization accountability report

Civil society

Private sector

Country/regional specification

Surveillance

International organization surveillance

Core/other international organization

1985-1 Summit average 1987-32 Summit average 1989-21 1989-22 1989-3 1989-4 Summit average 1990-26 1990-27-28 1990-29 1990-36 Summit average 1991-1 1991-4

Priority placement

Commitment

Table 5.3  G7/8 compliance catalysts

0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1 1 1 1

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 1 0 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 1 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1 1 0 1 0.75

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 1 0 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 1 0 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 1 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1 1

0 0

0 0

0 0

1 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

Summit average 1992-5 1992-2 1992-6 (?) Summit average 1993-6 1993-3 Summit average 1994-1 1994-3 Summit average 1995-23 Summit average 1996-87 Summit average 1997-8 1997-9 1997-10 1997-11 Summit average 1998-32 1998-34 1998-35 Summit average 1999-32 Summit average

1

0

0

0

0.5

0

0

0

0

0

0

0

0

0

0.5

0

0

0

0

0

0

0

0

1 1 0 0.67

0 0 0 0

0 0 0 0

0 0 0 0

1 0 0 0.33

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 1 0 0.33

0 0 0 0

0 0 0 0

1 0 0 0.33

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

1 1 1

0 0 0

0 0 0

0 0 0

1 0 0.5

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 1 0.5

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 1 0.5

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 1 0.5

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1 0 0 0.50

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1 1 0 0 0.5

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1 0 0 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1 1 1 1

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

1 1 1 1

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

0 0 0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

(Continued)

Priority placement

Past reference to summit

Past reference to ministerial

Targets

Time table: single year

Time table: multi-year

Self-monitoring

Remit mandate

Money mobilized

Specified agent

Institutional body

Core international organization

Other international organization

Regional organization

International law

Ministers

International organization accountability report

Civil society

Private sector

Country/regional specification

Surveillance

International organization surveillance

Core/other international organization

Commitment 2000-86 Summit average 2001-xx 2001-xx 2001-xx 2001-44 Summit average 2002-8 Summit average 2003-75 2003-92 Summit average 2004(s)-3 2004-S2 Summit average 2005-1 2005-2 2005-15 2005-18 2005-158

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1 0 0 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 1 1 0.50

0 0 0 0 0

0 0 0 0 0

0 1 0 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 1 0.50

0 0 0

0 0 0

0 0 0

0 0 0

1 0 0.50

0 0 0

0 0 0

0 0 0

1 0 0.50

0 0 0

0 0 0

0 0 0

0 0 0

1 0 0.50

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 1 1 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 1 0 1 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 1

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

Summit average 2006-62 2006-99 2006-110 2006-116 2006-123 2006-138 2006-156 2006-162 2006-165 Summit average 2007-28 2007-35 2007-36 2007-44 Summit average 2008-27 2008-55 2008-72 2008-251 2008-265 Summit average 2009-49 2009-64 2009-66 2009-73 2009-98 Summit average 2010-26 2010-27

2010-55 Summit average

0.40

0

0

0

0

0

0

0

0

0

0

0

0

0

0.40

0

0

0

0

0

0

0

0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 1 0 0.11

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 1 0 0 0 0 0 0 0 0.11

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 1 0.11

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 1 0 1 0 0 0 0

0 0 0 0 0 0 0 0 0 0.22

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 1 0 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

1 1 1 0 0 0.60

0 0 0 0 0 0

0 0 0 0 0 0

0 0 1 0 0 0.20

0 0 0 0 0 0

0 0 0 0 1 0 0 0 0 0 0.20 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 1 0.20

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 1 0 0 1 0.40

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

1 0 0 0 0 0.20

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

0 0 0 0 0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

1

0

0

0

(Continued)

Priority placement

Past reference to summit

Past reference to ministerial

Targets

Time table: single year

Time table: multi-year

Self-monitoring

Remit mandate

Money mobilized

Specified agent

Institutional body

Core international organization

Other international organization

Regional organization

International law

Ministers

International organization accountability report

Civil society

Private sector

Country/regional specification

Surveillance

International organization surveillance

Core/other international organization

Commitment

2011-51 Summit average 2012-29 Summit average 2013-145 2013-150 Summit average 2014-45 2014-49 Summit average 2015-33 2015-187 2015-188 2015-192 Summit average 2016-25 2016-166 Summit average Total

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

0 0

1 1 1

1 0 0.5

0 0 0

0 0 0

0 0 0

0 1 0.5

0 0 0

0 0 0

0 1 0.5

1 0 0.5

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

1 0 0 0 0.5 0

0 0 0

0 0 0

0 0 0

1 1 1

0 0 0

0 0 0

0 0 0

1 0 0.5

0 1 0

0 0 0

0 0 0

0 1 0.5

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

1 0 0 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 1 0 0.25

0 0 1 0 0.25

0 0 1 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 1 0 0.25

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 1 0 0

0 0 0 0 0

0 0 0 0 0

0 0 1 0 0.25

0 0 1 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 1 0.5

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

1 1 1

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0.03 0.11 0.05 0

0

0

0

0.21 0

0

0.03 0.11 0.03 0

0

0

0.34 0.11 0

Note: N = 82.

0.05 0.05 0.11 0

G7 governance of climate change  117 These results, however, are preliminary – only three commitments contained the catalyst of specified agent and only two of country/regional specification. Moreover, even with 74 observations, issues of collinearity and overlap among some catalysts could arise. A more detailed look at individual members’ compliance suggests that several other catalysts matter for particular members and that each member responded to a distinctive catalyst cocktail. For Canada, the catalyst of specified agent had a strong positive effect on compliance at +0.65, while priority placement (present in 39 commitments) had a weak, positive effect at +0.21. For France, a target (present in one commitment) was a very strong compliance inhibitor at −1.08. For Germany, country/regional specification (present in two commitments) was a strong inhibitor at −0.78. For Japan, private sector (present in four commitments) was a weaker inhibitor at −0.49. For the EU, international law (present in 22 commitments) was a moderately weak inhibitor at −0.25. The EU, as a very hard law, semi-­ supranational, large and powerful international institution with precise rules, monitoring and enforcement mechanisms might not feel bound by the commitments of the informal G7/8, even though EU members constitute a majority of the members there. Russia joined the G7 summit as a full member in 1998 making it the G8. It was therefore present at fewer overall summits. Of the summits it did attend, 51 climate change commitments were generated. The catalyst of priority placement (present in 22 commitments) had a positive impact on Russia’s compliance at +0.39, while specified agent had a strong positive impact at +0.72. Country/regional specification, however, had a very strong negative impact on Russia’s compliance at −1.53. Italy, the U.S. and UK’s compliance was not impacted by any catalyst to a significant degree (see Table 5.2). Companion commitments The second accountability measure is companion commitments, defined as the number of commitments made on the same subject at the same summit. G7/8 leaders consciously control how many commitments across how many issue areas they make each time they meet. G7/8 leaders have been regularly advised to focus on a few core subjects and commitments, as a greater number of commitments made across a greater number of issue areas are believed to crowd out the leaders’ focus on a key set of commitments on a single subject leading to less monitoring, implementation and compliance. The counterargument is that leaders do not live in such a zero-sum world, that a large number of commitments indicates which issues are prioritized and that many commitments over a wide range of related issues can synergistically produce win-win solutions, especially given the links between climate change with energy, health, economic growth and finance and development. The UN itself recognized the close

118  John J. Kirton et al. connections between these key areas with the launch of its Sustainable Development Goals in 2015. The number of companion commitments on climate change varied widely each year, as did average compliance (see Table 5.4). The 14 summits with the highest compliance on climate change commitments, with an average of +0.72, made a collective 201 climate change commitments or an annual average of 14.36. The 14 summits with the lowest compliance average of +0.21 made a collective 131 climate commitments or an annual average of 9.36. This large difference strongly suggests that the more companion commitments generated, the higher the level of compliance. Further research should explore the extent to which the total number of commitments made across all issue areas at each summit affects compliance with the climate change ones. Table 5.4  G  7/8 Summit-based causes Year

Summit score

Commitments per summit

Ministers’ meetings (pre-summit)

United Nations summit

1998 2002 2004 2003 2005 1992 1994 2011 2009 2014 1993 1996 2007 2006 Total Average 2008 1985 2000 1991 1997 1995 1987 2010 2013 2012 2001 1989 1990 1999 Total Average

+1.00 +0.89 +0.89 +0.88 +0.80 +0.71 +0.71 +0.67 +0.64 +0.63 +0.57 +0.57 +0.56 +0.53 – +0.72 +0.53 +0.50 +0.44 +0.40 +0.31 +0.29 +0.29 +0.26 +0.22 +0.11 0 −0.07 −0.11 −0.22

8 1 3 4 30 8 4 7 43 16 4 3 49 21 201 14.36 55 1 2 5 9 7 1 11 12 5 8 4 7 4 131 9.36

1 1 0 1 2 2 1 0 1 0 0 1 2 1 13 0.93 2 0 1 0 1 1 0 0 0 0 1 0 0 1 7 0.50

0 1 0 0 0 0 0 0 1 0 0 1 0 0 3 0.21 0 0 0 1 0 0 0 0 0 1 0 0 0 0 2 0.14

+0.21

G7 governance of climate change  119 Iteration The third accountability measure is iteration, defined as ‘how often and how long it [the subject] has been repeated in the past or will be in the future’ (Kirton, Kokotsis and Guebert 2016). Here, iteration refers to climate change commitments made at the summit in the previous year, either once or multiple times. Of the 74 assessed commitments, 63 were iterations of commitments made in the previous summit communiqué. This did not, however, significantly impact average compliance. Iteration had a weak and an inhibiting impact on only two members: Russia at −0.10 and the EU at −0.08. This may be counterintuitive, as one might expect iteration to increase compliance due to the ongoing attention given to the issue. However, considering that each G7/8 summit agenda is created by the summit host to deal with the most pressing issues at the time, iteration may serve to compete with the issues that seem most salient in any given year. Thus, leaders may not be willing to devote the resources and effort needed to implement the commitment as other regional or global issues may be viewed as more pressing or urgent. Ministerial reinforcement The fourth accountability measure is ministerial reinforcement, measured by the impact that a G7/8 environment or energy ministers’ meeting held in the lead-up to the leaders’ summit had on compliance with the climate change commitments made there (Risbud 2002). This measure uses pre-summit meetings, as these meetings are designed to prepare commitments for leaders to comply with in a more detailed and realistic way. Of the 32 summit years that produced climate change commitments, 21 had pre-summit environment ministerial meetings. These meetings began in 1992, the year of the UN’s Rio Earth Summit that created the umbrella UNFCCC. No environment ministers’ meeting was held in 1993, but annual meetings were held between 1994 and 2009, with two including energy ministers and one including development ministers. There were no environment ministers’ meetings held between 2010 and 2014, but under the Japanese presidency in 2016, the meetings revived, just a few months after the Paris Agreement on climate change was signed by nearly 200 nations. And despite its low compliance on climate change, the 2017 Italian host – with the Paris Agreement now in force – kept the environment ministerial meeting alive, although holding it after the leader’s summit. The 14 summits with the highest compliance had 13 pre-summit ministerial meetings or 0.93 on average, whereas the bottom 14 summits had only half as many with seven or 0.50 on average (see Table 5.5). Pre-summit set-up ministerial meetings thus seem to have a clear, compliance-­enhancing effect. Compliance does not, however, increase proportionately with the number of pre-summit meetings held, suggesting that at least one ministers’ meeting contributes to higher compliance.

120  John J. Kirton et al. Official body support The fifth accountability measure of official body support comes from G7-centred forums below the ministerial level, such as working groups, expert groups and task forces. The climate change-related ones include the Nuclear Safety Working Group, the Renewable Energy Task Force, the Carbon Sequestration Leadership Forum and the Dialogue on Sustainable Energy. It includes official support bodies created within the year at or after a summit is held and that are tasked with addressing climate change. There were 12 such bodies: two for general climate change in 1985, one for Global Earth Observation System of Systems or Global Earth Observation System of Systems in 2004 and four for renewable energy also in 2004. One was created for the Gleneagles Dialogue in 2005, one for energy in 2006 and again in 2007, one for assisting developing countries in 2008 and one for forests in 2009. Official-level bodies did not have an effect on either overall or individual average compliance. Yet for the years in which these bodies were created, all but one had compliance in the top scoring summit range (see Table 5.5). Table 5.5  G  7/8 official bodies First summit cycle

Meetings

1975 1977 1979

1980

London Nuclear Suppliers Group International Nuclear Fuel Cycle Evaluation Group High Level Group on Energy Conservation and Alternative Energy International Energy Technology Group High Level Group to Review Oil Import Reduction Progress International Team to Promote Collaboration on Specific Projects on Energy Technology High Level Group to Review Result on Energy

Second summit cycle 1985 1985

Expert Group on Desertification and Dry Zone Grains Expert Group on Environmental Measurement

Third summit cycle 1992 1993

Nuclear Safety Working Group G8 Non-Proliferation Experts Group

Fourth summit cycle 1996 1997 2000 2002 2002 2002

Nuclear Safety Working Group Officials Group on Forests Renewable Energy Task Force Energy Officials Follow-up Process G8 Global Partnership Review Mechanism G8 Nuclear Safety and Security Group

1979 1979 1980

Fifth summit cycle 2003 2003

Senior Officials for Science and Technology for Sustainable Development G8 Enlarged Dialogue Meeting

G7 governance of climate change  121 First summit cycle

Meetings

2004 2004 2004

Global Partnership Senior Officials Group (GPSOG) Global partnership Working Group (GPWG) International Partnership for a Hydrogen Economy (IPHE) IPHE Implementation-Liaison Committee Carbon Sequestration Leadership Forum (CSLF) Renewable Energy and Energy-Efficiency Partnership (REEEP) Generation IV International Forum (GIF) Global Earth Observation System of Systems (GEOSS) Dialogue on Sustainable Energy Global Bioenergy Partnership G8 Expert Group on Securing Energy Infrastructure Structured High-Level Dialogue with Major Emerging Economies (Heiligendamm process), including energy G8 Experts Group to Monitor Implementation on Food Security Climate Investment Funds (Climate Investment Fund, Clean Technology Fund, Strategic Climate Fund) Energy Forum Major Economies Forum on Energy and Climate Intergovernmental Platform on Biodiversity and Ecosystem Services L’Aquila Food Security Initiative Global Agriculture and Food Security Program

2004 2004 2004 2004 2004 2005 2005 2006 2007 2008 2008 2008 2009 2009 2009 2010 Sixth Summit Cycle None after 2010

Note: Excludes one-off meeting or conferences, Global Partnership on Weapons and Materials of Mass Destruction, 1990 Brazil Pilot Program on Tropical Forests and 1992 Global Environment Facility Working Group of Experts. A summit cycle is one rotation of presidencies starting with France and ending with Canada. Most directly relevant bodies are in italics.

UN summitry The sixth accountability measure is multilateral organizational support. The assessment here examines the support offered by surrounding summits, specifically UN summits focused on climate change. Such UN summitry could increase G7/8 compliance as its leaders strive to reinforce the norms the UN sets on climate change. Conversely, UN summitry may decrease G7/8 compliance as members might pass the buck and rely on the UN to govern climate change. During the 32 years in which the G7/8 summits generated climate change commitments, the UN held six climate summits immediately following the G7/8. The UN was thus in a position to influence G7/8 compliance during the subsequent year. There were an average of 0.21 such subsequent UN summits for the top complying half of the G7/8 summits and 0.14 for the bottom complying half (see Table 5.5). This suggests that support from subsequent UN summits increases compliance with the commitments G7/8 leaders make.

122  John J. Kirton et al. Conclusion This chapter shows that the G7/8 increasingly made climate change commitments since 1985 with a peak of 55 in 2008. Compliance with the 82 assessed climate commitments averaged +0.46 or 73%. G7/8 climate compliance increased somewhat with a commitment catalyst of a specified agent, but very strongly by an established environment ministerial to reinforce the G7/8’s commitments. It was also raised by more companion commitments, post-summit support from official bodies and, marginally, by subsequent UN summit support in that same year. It was significantly lowered by the catalyst of country/regional specification. To increase climate change compliance, the G7/8 should thus specify an agent to ensure compliance, generate additional climate commitments each year and host regular environment and/or energy ministerial meetings (following its 2016 re-start). This chapter thus makes several contributions in both the policy and scholarly realm. For policymakers, it shows that G7/8 and G20 leaders can increase compliance with their climate change commitments in several specific ways. This is an urgent and compelling task. With the steady rise in atmospheric greenhouse gas concentrations and the continuing failure of the UN COP process, the G7/8 needs, at a minimum, to comply with its existing climate change commitments as well as generate stronger, more robust ones. As Table 5.6 indicates (the most recent data set), based on compliance assessments with 505 G7/8 commitments, average multi-year compliance with climate commitments is 73%, below the environment at 79% and energy at 82%. For scholars of global environmental governance, this moderate climate compliance shows that informal, plurilateral, intergovernmental institutions of the world’s most powerful countries do cooperate to induce their members to comply with the commitments they generate. This study also reveals some of the many possible causes of such compliance and what leaders can do to improve it. However, many outstanding issues remain for subsequent research. These start with analysing catalysts over a larger number of cases of commitments that have been assessed for compliance, testing post-summit as well as pre-summit iteration and ministerial support, and assessing the annual causes through multiple regression analyses once 30 years of such G7/8 data becomes available. One should further assess the accountability measures of civil society participation (Hajnal 2002a, 2002b). Also important are the accountability assessments of both an internal and independent kind, the latter from both advocacy groups and solely analytically focused ones. A broader task is to assess how the G7/8 can better link climate change not only with the cognate field of energy but with all the interrelated issue areas that now form part of the UN’s sustainable development goals. In all cases, further attention should be paid to issues of collinearity, confounding variables and overfitting that may arise.

G7 governance of climate change  123 Table 5.6  G7/8 multi-year compliance averages 2017 G7 Taormina priorities

Issue area

Average score

1.

Overall compliance

+0.51

75%

Migration/refugees Terrorism Crime and corruption n/a

+0.69 +0.61 +0.46 n/a

85% 81% 73% n/a

Regional security Non-proliferation Macroeconomic policy Trade Energy Climate change Environment Food and agriculture Health Gender Education Information and communication technology Labour and employment Social policy n/a Financial regulation

+0.62 +0.63 +0.70 +0.27 +0.64 +0.46 +0.57 +0.54 +0.54 +0.20 +0.38 +0.70

81% 82% 85% 64% 82% 73% 79% 77% 77% 60% 69% 85%

+0.52 +0.71 n/a +0.55

76% 86% n/a 78%

2.

3.

4.

Investing in innovative Italy Human mobility Terrorism and corruption Africa and the middle east Security Economic growth and trade Energy Climate change Food and nutrition Health Gender equality Education Innovation Labour Social security Infrastructure Financial stability

N = 505.

References Barnes, James. 1994. Promises, Promises! A Review: G7 Economic Summit Declarations on Environment and Development. Washington, DC: Friends of the Earth. Bayne, Nicholas. 2000. Hanging in There: The G7 and G8 Summit in Maturity and Renewal. Aldershot: Ashgate. Bayne, Nicholas. 2005. Staying Together: The G8 Summit Confronts the 21st C ­ entury. Aldershot: Ashgate. Bernstein, Steven. 2000 “Ideas, Social Structure, and the Compromise of Liberal Environmentalism.” European Journal of International Relations 6, no. 4: 464–512. Bernstein, Steven. 2001. The Compromise of Liberal Environmentalism. New York: Columbia University Press. Biermann, Frank, and Steffen Bauer, eds. 2005. A World Environment Organization: Solution or Threat for Effective International Governance. Aldershot: Ashgate. Breitmeier, Helmut. 2008. The Legitimacy of International Regimes. Farnham: Ashgate. CBC Interview. 2015. “Angela Merkel interview: G7 summit will tackle global economy, foreign policy.” June 4, CBC News. www.cbc.ca/news/world/angela-merkel-­ interview-g7-summit-will-tackle-global-economy-foreign-policy-1.3099931. G7. 1975. “Declaration of Rambouillet.” Rambouillet, November 17, 1975. www. g8.utoronto.ca/summit/1975rambouillet/communique.html.

124  John J. Kirton et al. G7. 1976. “Joint Declaration of the International Conference.” San Juan, Puerto Rico, June 28, 1976. www.g8.utoronto.ca/summit/1976sanjuan/communique.html. G7. 1977. “Declaration: Downing Street Summit Conference.” London, May 8, 1977. www.g8.utoronto.ca/summit/1977london/communique.html. G7. 1978. “Declaration.” Bonn, July 17, 1978. www.g8.utoronto.ca/summit/1978bonn/ communique.html. G7. 1988. “Toronto Economic Summit Economic Declaration.” Toronto, June 21, 1988. www.g8.utoronto.ca/summit/1988toronto/communique.html. G7. 1989. “Economic Declaration.” Paris, July 16, 1989. www.g8.utoronto.ca/summit/ 1989paris/communique/index.html. G7. 1992. “United Nations Conference on Environment and Development (UNCED).” Munich, July 6–8, 1992. www.g8.utoronto.ca/summit/1992munich/ communique/environment.html. G7. 2014. “G7 Brussels Summit Declaration.” Brussels, June 5, 2014. www.g8.­ utoronto.ca/summit/2014brussels/declaration.html. G7. 2015. “Leaders’ Declaration: G7 Summit.” Scholss Elmau, June 8, 2015. www. g8.utoronto.ca/summit/2015elmau/2015-G7-declaration-en.html. G8. 1997. “Communiqué.” Denver, June 22, 1997. www.g8.utoronto.ca/­summit/ 1997denver/g8final.htm. G8. 2002. “The Kananaskis Summit Chair’s Summary.” Kananaskis, June 27, 2002. www.g8.utoronto.ca/summit/2002kananaskis/summary.html. G8. 2003. “Chair’s Summary.” Evian, June 3, 2003. www.g8.utoronto.ca/summit/ 2003evian/communique_en.html. G8. 2004. “Chair’s Summary.” Sea Island, June 10, 2004. www.g8.utoronto.ca/­ summit/2004seaisland/summary.html. G8. 2005. “Chair’s Summary.” Gleneagles, July 8, 2005. www.g8.utoronto.ca/­ summit/2005gleneagles/summary.html. G8. 2013. “G8 Lough Erne Leaders’ Communiqué.” Lough Erne, Northern ­Ireland, June 18, 2013. www.g8.utoronto.ca/summit/2013lougherne/lough-erne-­ communique.html. G20. 2011. “Cannes Summit Final Declaration – Building Our Common Future: Renewed Collective Action for the Benefit of All.” Cannes, November 4, 2011. www.g20.utoronto.ca/2011/2011-cannes-declaration-111104-en.html. G20. 2012. “G20 Leaders’ Declaration.” Los Cabos, June 19, 2012. www.g20.uto ronto.ca/2012/2012-0619-loscabos.html. G20. 2013. “G20 Leaders’ Declaration.” St. Petersburg, September 6, 2013. www. g20.utoronto.ca/2013/2013-0906-declaration.html. G20. 2017. “G20 Leaders’ Declaration: Shaping an Interconnected World.” ­Hamburg, July 8, 2017. www.g20.utoronto.ca/2017/2017-G20-leaders-declaration.html. Germany. 2015. “Speech by Federal Chancellor Angela Merkel during event hosted by the newspaper.” March 9, Tokyo. www.bundeskanzlerin.de/Content/EN/Reden/ 2015/2015-03-09-merkel-asahi-shimbun_en.html;jsessionid=31CCEB6068 FBCCC44B14B06C10CF0E98.s3t1. Haas, Peter M. 2002. “UN Conferences and Constructivist Governance of the Environment.” Global Governance 8, no. 1: 73–91. Hajnal, Peter I., ed. 2002a. Civil Society in the Information Age. Aldershot: Ashgate. Hajnal, Peter I. 2002b. The G7/G8 and Civil Society. Toronto: G8 Research Group. Hajnal, Peter I. 2007. The G8 System and the G20: Evolution, Role, and Documentation. Aldershot: Ashgate.

G7 governance of climate change  125 Huang, Jing. 2009. “A Leadership of Twenty (L20) Within the UNFCCC: Establishing a Legitimate and Effective Regime to Improve Our Climate System.” Global Governance 15, no. 4: 435–441. Kennan, George. 1970. “To Prevent a World Wasteland: A Proposal.” Foreign Affairs 48: 401–413. Kirton, John J. 1990a. “Sustainable Development at the Houston Seven Power ­Summit.” Paper prepared for the Foreign Policy Committee, National Round Table on the Environment and the Economy, September 6, 1990. www.g8.utoronto. ca/scholar/kirton-900906.html. Kirton, John J. 1993. “The Seven Power Summits as a New Security Institution.” In Building a New Global Order: Emerging Trends in International Security, edited by David Dewitt, David Haglund, and John J. Kirton, 335–357. Toronto: Oxford University Press. Kirton, John J. 2005. “Generating Effective Global Environmental Governance: The North’s Need for a World Environment Organization.” In A World Environmental Organization: Solution or Threat for Effective International Environmental Governance? edited by Frank Biermann and Steffan Bauer, 31–50. Aldershot: Ashgate. Kirton, John J. 2006. “Explaining Compliance with G8 Finance Commitments: Agency, Institutionalization, and Structure.” Open Economies Review 17, no. 4: 459–475. Kirton, John J. 2013. G20 Governance for a Globalized World. Farnham: Ashgate. Kirton, John J., and Ella Kokotsis. 2015. The Global Governance of Climate Change: G7, G20 and UN Leadership. Farnham: Ashgate. Kirton, John J. 2016. China’s G20 Leadership. London: Routledge. Kirton, John J., Ella Kokotsis, Jenilee Guebert et al. 2018. “Compliance Coding Manual for International Institutional Commitments.” Global Governance Program, Trinity College, University of Toronto, March 2016. Kirton, John J., Julia Kulik, and Caroline Bracht. 2014. “Connecting Climate Change and Health Through Global Summitry.” World Medical and Health Policy 6, no. 1: 73–100. Kirton, John J., and Marina Larionova. 2018. Accountability for Effectiveness. ­London: Routledge. Kokotsis, Eleanore. 1999. Keeping International Commitments: Compliance, Credibility, and the G7, 1988–1995. New York: Garland. Kokotsis, Ella. 2004. “Explaining G8 Effectiveness: The Democratic Institutionalist Model of Compliance with G8 Commitments.” Paper prepared for a panel on “Explaining G8 Effectiveness.” 45th Annual Meeting of the International Studies Association (ISA), Montreal, Quebec, March 17–21, 2004. MacNeill, Jim, Pieter Winsemius, and Taizo Yakushiji. 1991. Beyond Interdependence: The Meshing of the World’s Economy and the Earth’s Ecology. Oxford: ­Oxford University Press. MEF. 2009. “Declaration of the Leaders: The Major Economies Forum on Energy and Climate.” July 9, L’Aquila Summit. www.g8.utoronto.ca/summit/2009laquila/2009-mef.html. Risbud, Sheila. 2002. “Civil Society Engagement: A Case Study of the 2002 G8 Environment Ministers Meeting.” In Sustainability, Civil Society and International Governance, edited by John J. Kirton and Peter Hajnal, 337–342. London: Ashgate. Shelling, Thomas C. 2002. “What Makes Greenhouse Sense?” Foreign Affairs 81, no. 3: 2–9.

126  John J. Kirton et al. Sustainable Energy Development Center. 2006. Global Energy Security: Summary of Russia’s G8 Presidency. Moscow: Sustainable Energy Development Center. UN. 1945. “Charter of the United Nations.” San Francisco. www.un.org/en/­sections/ un-charter/introductory-note/index.html. UNFCCC. 1992. “United Nations Framework Convention on Climate Change.” United Nations, 1992. UNFCCC. 2015. “The Paris Agreement.” United Nations, December 2015. US Department of State Dispatch Supplement. 1992. “US Department of State Dispatch Supplement.” US Department of State, 1992. Vihma, Antto. 2014 “How to Reform the UN Climate Negotiations? Perspectives from the Past, Present and Neighbour Negotiations.” Finnish Institute of International Affairs Working Paper, (October): 1–19. Von Furstenberg, George. 2008. “Performance Measurement under Rational International Overpromising Regimes.” Journal of Public Policy 28, no. 3: 261–287. Von Furstenberg, George M., and Joseph P. Daniels. 1992. “Can You Trust G7 Promises?” International Economic Insights 3, no. 5: 24–27.

6 Government debt, economic fundamentals and OTC derivatives in the G7 Chiara Oldani

Introduction G7 countries represent 10% of the global population, but almost 40% of gross domestic product (GDP) and their average GDP per capita is three times higher than world average level (approximately US$12,000). The wealth of G7 countries is reflected in their public debt that over the last two decades has kept increasing and in 2015 reached an average value of 119% over GDP (IMF 2016). According to the latest IMF figures referring to 2016, debt is increasing particularly in Japan, where its ratio reached 200% of GDP, followed by Italy, with 132%, and in the U.S., with 108% (Figure 6.1). Such a large amount of public debt, mainly issued in the financial market as Treasury bonds, needs proper risk management policies since financial risks and volatility can propagate and, ultimately, affect stability and growth of the economy. These financial risks arise from the changing global regulatory environment and from the opaqueness of financial markets, especially the over-the-counter (OTC) segment. From a purely political economy point of view, public debt is mainly a domestic variable, and its reduction or increase is a political choice; however, financial markets are highly interconnected, which entails that yields and spreads react suddenly across domestic borders. The public debt of G7 countries is mainly issued in the bond market, and in order to keep the system safe, these countries have actively contributed to develop an efficient market infrastructure to manage their debt and to build the fundamentals on common solid financial regulation. In this respect, G7 meetings in the last decades contributed to consolidate the common goals of market discipline, fight against tax evasion and corruption and enhance transparency to foster growth. The 2017 Taormina meeting in Italy makes no exception, as explained in the introductory chapter of this volume. Global regulatory coordination is a complex political process that is heavily influenced by the business cycle; history teaches us that swift regulatory interventions are more likely to take place soon after deep economic crises or financial turmoil. As explained by Lall (2015) with his Technical Elite Network theory, global financial regulation is a highly technical and complex issue, thus, first movers have an enormous advantage on setting the agenda of rulemaking, as their goals are more likely to be achieved.

128  Chiara Oldani 300.00 250.00 200.00 150.00 100.00 50.00 0.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (forecast) France Germany Italy Japan United kingdom United States Canada

Figure 6.1  G7 gross public debt as % of GDP (yearly). Source:  WEO, October 2017.

The financial crisis that originated in the subprime market in 2007 pushed countries to swiftly intervene and react to stabilize expectations of ­operators; the European Union (EU) established a technical committee chaired by the former Governor of the Central Bank of France, Jacques de Larosiere that set the European priorities in terms of regulation and risk management (2009). Similarly, the U.S. Congress approved the Dodd-Frank Wall Street Consumer Protection Act in 2010. The agenda of the EU and the U.S. did not match in all respects, but most economists agree that the 2009 G20 Summit that took place in Pittsburg (U.S.) represents a turning point in the global regulatory coordination process. Interestingly, one of the few positive consequences of the global financial crisis of 2007–2010 has been an improved regulatory coordination among G7 and G20 countries. The ­Financial Stability Board (FSB) that seeks to strengthen financial s­ ystems and increase the stability of international financial markets, e­ ffectively ­promoted coordination and information exchange among authorities, countries and central banks. Soon after the crisis hit the global economy, G20 countries implemented c­ oordinated structural reforms of the stock market, especially in terms of transparency, fight against tax evasion and m ­ onitoring. G20 countries acted to strengthen the capitalization of banking institutions and financial intermediaries, since highly leveraged intermediaries (like AIG in the U.S.) and banks (like ­Lehman Brothers) contributed to boost the stock market, but could not manage the unexpected losses, and ultimately taxpayers had to foot the bill. OTC derivatives are considered to be at the root of the financial crisis of 2007–2010, and G20 countries implemented the centralized counterparty system of trading to reduce the systemic risks for financial intermediaries. These reforms aim at increasing the resilience of the global financial system and should be implemented at the global level to achieve this. G7 and G20 countries reduced the risks and concentration in the financial system by downsizing systemically relevant financial operators. The

Government debt, economic fundamentals and OTC derivatives  129 ‘originate-to-distribute’ business model of banking allowed financial intermediaries to originate credit and to sell it in the global market with little transparency and issue new credit under thin capital requirements. This systematic shift of credit (and risks) out of the balance sheets of intermediaries severely reduced their monitoring incentive on customers and risks and has been considered to be a major cause of the global meltdown. After 2010, the proprietary trading of financial intermediaries has been strongly limited to reduce their leverage and risk. These reforms negatively influenced profitability in the finance sector, and lobbies have worked hard to reduce the strength of the reforms. Since 2016, G7 countries reversed the path of enhanced regulatory coordination. In particular, the U.S. president elected in 2016, again a first mover, announced he would dismiss the Dodd–Frank Wall Street Consumer Protection Act, reduce the control over financial markets and leave private operators free to operate (Elliott 2017); it is likely that in the coming years, U.S. populism will undermine some of the key assumptions of the financial system, including the independence of the central bank, and will contribute to make capital flows more volatile. On the other side of the Atlantic, the British decision to leave the EU (Brexit), effective after March 2019, will have a certain impact on European financial flows, as without EU passporting British banks and intermediaries will lose their competitive advantages with respect to foreign investors. Other than the divorce bill that the UK will pay to the European Union (from £35 billion to £39 billion according to the preliminary agreements signed in December 2017), most economists agree that Brexit will contribute to widening the EU–UK gap in terms of regulation and coordination in the financial sector, will increase the volatility of prices, incentivize the relocation of private businesses out of the UK, thus increasing unemployment in the UK (Sants, Austen, Naylor, Hunt and Kelly 2016; Vergara Caffarelli 2016). However, the British parliament will have the final word on the exit process in 2019, and this could still halt this process.

G7 growth and the crisis The financial crisis of 2007–2010 originated in the subprime mortgage ­market, and turned into an economic crisis (Figure 6.2) after most countries actively intervened in their economies to counterbalance the sudden downturn, by means of extraordinary purchasing programs, such as the U.S. Troubled Assets Relief Program (TARP), financing programs, or the European Central Bank’s long-term refinancing operations (LTRO), and state aids, especially in the industrial sector (i.e., airlines, automotive and energy sectors); however, the extraordinarily high level of public spending exacerbated the public deficit and debt, leading in 2011 to the government debt crisis, while governments were unable to act at the root of the economic crisis (i.e., reduce productivity gaps).

130  Chiara Oldani 6 4 2 0 –2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (forecast)

–4 –6 –8

Canada

France

Germany

Italy

Japan

United kingdom

United States

Figure 6.2  G7 GDP growth rates (%, yearly, constant prices). Source: WEO, October 2017.

The low inflation rates registered after 2010 in G7 countries contributed to slow down the recovery process; the deflation registered in 2014–2015 in some countries aggravated the burden of public debt. After the financial crisis, some G7 counties were also faced with a public debt crisis; in 2011, the sluggish economic conditions contributed to increase risks and yields of treasury bonds. Domestic banks, persuaded by their governments, purchased increasing quantities of government bonds, since foreign investors suddenly modified their portfolios and preferred less risky bonds (i.e., flight to quality). The little weight given to domestic treasury bonds in terms of risk exposure and capital requirements favours the home bias in Europe. As a result, domestic banks and governments are increasingly dependent on each other. Among the G7, Italy was the most hit by the 2011 government debt crisis, alongside other peripheral EU countries, like Portugal and Spain. The yield on government bonds issued by the Republic of Italy reached 7% in November 2011, its peak value since the 1990s. During the worst phase of the crisis, investors from G20 countries like China and Saudi Arabia bought shares of industrial firms and banks in Italy at a very advantageous price, with positive effects on diplomatic relations. After 2012 banks and some industries were safe, but no G7 country succeeded in finding an effective way to save globalization’s losers (i.e., the unskilled labour force), and unemployment grew steadily (Figure 6.3). Labour productivity in Western countries exhibits stagnation, while emerging G20 countries (e.g., Turkey, South Korea and Mexico) show significant improvements (based on OECD data); these divergent paths are further fuelled by the delocalization of multinational firms from developing economies. Nevertheless, ‘pro-cyclical fiscal tightening might be one reason for the anemic economic recovery in Europe, raising questions about the effectiveness of the EU’s fiscal framework in achieving its two main objectives: ­public

Government debt, economic fundamentals and OTC derivatives  131 9

106

8

104

7

102

6

100

5

98

4

96

3

94

2

92

1

90

0

2004

2005

2006

2007

2008

G7 Unemployment Rate (% yearly)

2009

2010

2011

2012

2013

2014

2015

2016

88

G7 Labour Productivity (GDP per hour worked, RHS scale)

Figure 6.3  G7 Labour productivity and unemployment rate. Source: WEO, October 2017.

debt sustainability and fiscal stabilization’ (Claeys, Darvas and L ­ eandro 2016: 1). This point is supported by the fact that the recovery process of Canada, the U.S., and the UK has been much faster.

G7 countries public debt The economic literature has thoroughly investigated the role and sustainability of public debt; all agree that debt sustainability depends on growth and that the prolonged economic recession experienced by some G7 ­countries does not allow a significant reduction of the ratio between debt and GDP (Figures 6.1 and 6.2), as in the case of Japan and Italy ­(Lombardi and Amand 2015; Minenna 2016). Other than its management and ­sustainability, ­government debt is not measured with the same criteria in all countries by domestic and supranational organizations. To overcome these inconsistencies, Eurostat (2014) suggested a harmonized measure of net public debt for all member states, defined as the gross public debt (i.e., Maastricht debt) offset by assets in currency and deposits, loans, securities other than shares (excluding financial derivatives). According to IMF data, the average net debt over GDP of G7 countries reached 81% in 2016 (Figure 6.4); Canada, Japan and Germany benefit the most from the different measure of debt, while the U.S., the UK, France and Italy benefit to a very small extent. The stability of debt depends on its management; the mismanagement of debt can lead to default, but current supranational rules on government debt restructuring do not eliminate moral hazard, especially between governments and banks. According to the economic theory, public debt restructuring programs should ensure debt sustainability in probabilistic terms. While G7 countries issue their government debt mainly in domestic ­currency, other G20 countries issue the debt in a foreign currency (U.S.

132  Chiara Oldani 140 120 100 80 60 40 20 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (forecast) Canada Japan France Germany Italy United kingdom United States

Figure 6.4  G7 net public debt as % of GDP (yearly). Source: WEO, October 2017.

dollar, euro or Japanese yen), i.e. sovereign debt. Guzman and Stiglitz (2016) verified that after 1970, more than half of sovereign debt restructuring ­programs among UN countries were followed by default in 5 years and these events had large negative social consequences. In the recent past, A ­ rgentina and Greece experienced large downturns after implementing debt restructuring programs. In order to diminish the losses connected to these defaults, the UN introduced nine principles as the basis for restructuring processes (Guzman and Stiglitz 2016); these principles are sovereignty, good faith, transparency, impartiality, sovereign immunity, legitimacy, sustainability and majority restructuring. Sovereignty refers to the ability of countries to decide on their own public debt, including its restructuring; good faith should be a duty of creditors and debtors and should aim at re-establishing debt sustainability. ­Transparency is a principle related to information, valuation and financial market’s ­behaviour, including OTC derivatives written or related to the debt. The principle of impartiality reduces the number of authorities that could host the restructuring process, to manage the moral hazard. ­Sovereign immunity confirms that no country can renounce its immunity and limits f­ oreign ­jurisdictions. Legitimacy requires impartiality on the part of any party serving as m ­ ediator-arbitrator and it requires transparency. Sustainability is the primary goal of any restructuring process; majority restructuring ­limits arbitrage and free riding by creditors. In order for these soft law principles to be fully effective, they should translate in the domestic rule of law of UN nations; without their full implementation, the regulatory arbitrage in case of default is possible and even advantageous for certain creditors like vulture funds.

Government debt, economic fundamentals and OTC derivatives  133 Table 6.1  G  7 Government debt by creditors 2016

Canada France* Germany* Italy Japan UK U.S.

Domestic creditors (%)

External creditors (%)

76.43 38.00 48.00 65.46

23.57 62.00 52.00 34.54 10.00 33.86 35.86

66.14 64.14

*

Refers to 2015. Source: IMF, October 2016.

An essential ingredient for success in any restructuring program is debt ownership; this is because external creditors are very likely to put in place any strategy to reduce their losses, and even speculate, while domestic creditors are relatively easier to be managed by governments. Over 50% of the public debt of France and Germany is owned by foreign investors ­(Table 6.1). Among domestic creditors, domestic banks and financial intermediaries play a relevant role; banks own 21% of Italian and 23% of German government debt1.

Public debt and OTC derivatives After 1990, many countries managed their outstanding debt with OTC ­derivatives contracts under little control by supranational organizations, no supervision and lack of transparency; in 2017, gains and losses of these contracts are still difficult to evaluate because of the lack of information on such trading. OTC derivatives can be underwritten by governments and public administrations to smooth the cost of debt, to hedge the outstanding debt or to raise cash with up-front clauses (Oldani 2008: 107–149). OTC contracts, such as swaps, can smooth the cost of debt and hedge it by modifying the risk-­return profile and the duration of debt; up-front clauses allow highly indebted public administrations to increase their debt in the long run, and obtain cash upfront. The lack of transparency of OTC contracts in the public accounting system allowed them to proliferate in Europe in the recent past. OTC derivatives have been employed by countries to postpone revenues and anticipate losses, but such measures are highly controversial in the ­public finance literature because of the lack of transparency and information provided on these contracts and of political risks associated ­(Giovannini 1997). Certain preconditions should be satisfied before a country engages in OTC derivatives to manage its public debt (OECD 2007); in particular, back office procedures, sound regulation, liquidity measures and strong market rules should be put in place before a government engages in these trading

134  Chiara Oldani activities. Post-market procedures such as risk management, accounting and reporting practices should be properly implemented in order to ensure financial stability. The risk management of these contracts is a challenging duty for governments, especially because of the moral hazard that arises with banks and financial intermediaries that, simultaneously, sell these contracts to governments and buy government bonds. Moral hazard has not diminished after the financial crisis of 2007–2010; for example, some G7 governments intervened to rescue the banking system, like Ireland, or part of it, like Italy in 2017 with the €4.6 billion precautionary recapitalization of Monte dei Paschi di Siena banking group (Banca d’Italia 2016). Governments make extensive use of OTC derivatives in their funds management activities – especially with interest rate swaps (IRS) (OECD 2011), at both central and local levels. Costs and benefits of OTC derivatives are difficult to measure because of the changeable scenario on which derivatives are priced, and unstable probabilities; the literature confirmed that some European countries (i.e., France, Italy and Greece) employed OTC contracts to shift interest expenses forward and match the EMU accessing criteria of deficit over GDP (Piga 2001). The 2010 Greek crisis has its roots in the sluggish macroeconomic conditions of the country but is also the result of mismanagement of public finance, especially with OTC contracts, and of poor reporting and accounting practices (Oldani and Savona 2010). The public sector deals with financial innovation with some difficulty, and local administrators can mimic the behaviour of central authorities and employ OTC contracts to raise cash and increase the chances of being reelected; Perignon and Valle (2017) verified that OTC derivatives have been employed by local administrations’ managers in France to raise cash and increase their chances of re-election. This was possible because of the lack of accounting criteria and transparency. More recently, Fantini and Oldani (2017) analysed the use of OTC contracts by Italian regions, the first level of local administrations, taking into consideration that the aim of a derivative contract underwritten by a public administration with debt at fixed-rate, with no trading purpose, is to hedge against an increase in the interest rate. According to their findings, OTC derivatives underwritten by regions have been used to hedge their debts during the period 2007–2014, but a few probably employed these contracts to counterbalance the reduced resources they received from the central government (e.g., Piedmont and Tuscany). The G7 Leaders never took a direct position on OTC derivatives, except in 2009; in the final statement, Leaders commit to vigorously pursue the work necessary to ensure global financial stability at an international level playing field, including on compensation structures, definition of capital and the appropriate incentives for risk management of securitization, accounting and prudential standards, regulation and oversight of systemically important hedge funds,

Government debt, economic fundamentals and OTC derivatives  135 standardization and resilience of OTC derivative ­markets, ­establishment of central clearing counterparties for these products, and regulation and transparency of credit rating agencies. G8 Leaders, 2009, Final Statement, L’Aquila, Italy, 8–10 July 2009 Financial regulatory reforms undertaken after 2010 (promoted by the G20 and the FSB) to strengthen the settlement and trading of OTC derivatives contracts had an impact on associated costs. In particular, the establishment of central clearing systems increased the costs of trading for financial intermediaries (BIS 2014). Financial intermediaries are subject to the new regulation, as they sell OTC derivatives contracts, act as counterparts with governments and own significant percentages of Treasury bonds. Non-financial operators, like governments, did not reduce their OTC trading after 2010, based on BIS data (Figure 6.5); this is explained by how non-­ financial operators are not subject to the new costly regulation and have very limited incentives for central clearing, because of the absence of capital costs (BIS 2014) and due to different accounting standards. The short-term costs of the adherence to central clearing are worth $19.5 billion (Oldani 2018). Governments and local administrations can increase systemic risk and have the potential to undermine global financial stability, but financial regulatory reforms fail to explicitly take into account government trading, reducing the effectiveness of regulation itself with a negative impact on financial stability (Oldani 2015, 2018); omitting governments from these regulations represents a significant oversight of potential risks, as they are systemically important players, with a specific (political) powers. Among G7 countries, France, Germany and Italy reported to Eurostat inflows and outflows related to their OTC derivatives contracts; the most popular contract is the IRS followed by the exchange rate swap (ERS); these 1200 1000 800 600 400 200 0

2010

2011

2012

2013

2014

2015

2016

NON FINANCIAL CUSTOMERS

Figure 6.5  G  ross market value of OTC derivatives by non-financial customers. Source: BIS derivatives statistics (April 2017).

136  Chiara Oldani contracts are aimed at reducing the service of debt in terms of interests. I­ taly showed the higher negative figures, with large payments associated with both OTC and renegotiated contracts (Tables 6.2 and 6.3). Based on these data, the cumulative losses over 6 years within 2015 reached 1.8% of GDP (Table 6.4). In particular, Italy hedged against an increase of interest rates, but actually they decreased after 2010 and this debt-management strategy produced large losses and small gains. Table 6.2  P  ayments (+) and inflows (−) related to OTC derivative contracts (€ million)

Germany France Italy

2011

2012

2013

2014

−856.5 0 2,193.2

−975.4 482 3,876.5

1,275 −864 2,713.9

1,510 304 3,629.2

OTC = over-the-counter. Source: Eurostat, April 2015.

Table 6.3  P  ayments (+) and inflows (−) related to renegotiated OTC derivative contracts (with negative mark to market) (€ million)

Germany France Italy

2011

2012

2013

2014

0 −1,337 221

0 −298 1,668.5

0 −495 800

0 −504 1,829.1

OTC = over-the-counter. Source: Eurostat, April 2015.

Table 6.4  Italian government derivatives underwritten 2006–2015 (€ billion) Year

Negative mark to market – Negative flows net derivatives

2006 (22.8) (0.1) 2007 (18.1) (0.1) 2008 (26.8) (0.9) 2009 (21.4) (0.8) 2010 (18.8) (2.0) 2011 (27.6) (2.4) 2012 (34.3) (5.6) 2013 (29.0) (3.5) 2014 (42.1) (5.5) 2015 (36.7) (6.8) 2016 (5.5) Mark-to-market potential loss as a % of GDP 2015 Cumulated loss in the last 6 years Cumulated loss in the last 6 years as a % of GDP 2015 GDP = gross domestic product.

GDP

Negative flows as a % of GDP

1,548.5 1,609.6 1,632.2 1,572.9 1,604.5 1,637.5 1,613.3 1,604.6 1,620.4 1,642.4 1,673.3 2.2% (29.2) 1.8%

(0.0%) (0.0%) (0.1%) (0.1%) (0.1%) (0.1%) (0.3%) (0.2%) (0.3%) (0.4%) (0.3%)

Government debt, economic fundamentals and OTC derivatives  137

Debt sustainability and fiscal policies Among G7 countries, Italy, Japan and the U.S. exhibit a ratio of public debt over GDP higher than 100%; while the U.S. and Japan do not have any explicit debt stabilization rules, on the contrary, EU countries should comply on a yearly basis with stringent fiscal budget and public debt criteria that are defined on the basis of certain accounting measures and probabilities. The debt stabilization policies of EU countries directly influence their financial stability. However, the success of matching these criteria also depends on such measures and on how these fiscal policies are implemented. Back in 2002, the President of the European Commission, Romano Prodi, made reference to the European fiscal rules as being stupid (The G ­ uardian 2002), since they were purely automatic rules and did not c­ onsider the complex drawback effects of a recession; the systematic failure of ­European ­fiscal automatic rules has not been yet solved, and a dozen E ­ uropean ­countries will not match the 60% debt to GDP target (in 2031) even if they comply with fiscal rules because of poor growth (Claeys, ­Darvas and ­Leandro 2016). The failure of European fiscal rules in the last decade confirms that growth, not debt, should come first; this failure is further compounded by the spread of anti-European and anti-globalization political movements, as described by J. Wouters and R. Marchetti in this book. According to Claeys et al. (2016: 3), the current European fiscal framework ‘has two basic objectives: (1) to discourage the deficit bias of g­ overnments in order to ensure fiscal discipline and the long-term sustainability of the public debt, and (2) to support countercyclical fiscal policy in both good and bad times.’ But this framework is ineffective, as ‘badly-measured structural balance and its incorrect forecasts lead to erroneous policy recommendations’ (Claeys et al. 2016: 1). In theory, the current EU fiscal rules, with cyclically adjusted targets, flexibility clauses and the option to enter an excessive deficit procedure, allow for large-scale fiscal stabilization during a recession. However, the implementation of the rules is hindered by the badly-measured structural balance indicator and incorrect forecasts, leading to erroneous policy recommendations. The large number of flexibility clauses makes the system opaque. (Claeys et al. 2016: 1) Common European fiscal rules need to change, but the coordination of policies among member states and debt stabilization should not be reduced in any possible manner. The first best solution, i.e. a fresh new fiscal framework in the EU, is very unlikely to be feasible in the current phase of institutional fragility, fragmentation and increasing populism in the main member states (Italy, France, Spain and Germany).

138  Chiara Oldani According to Claeys et al. (2016: 2), the ‘current inefficient European fiscal framework should be replaced with a system based on rules that are more conducive to the two objectives, more transparent, easier to implement and which have a higher potential to be complied with’; thus, they propose to drop all rules related to the badly-measured structural balance indicator and adopt an expenditure rule with a debt-correction mechanism, within a multi-annual fiscal framework. The expenditure rule should set a limit on the growth rate of nominal public expenditure excluding interest, labor-market related and one-off expenditure, while public investment expenditure should be smoothed over several years and accounted for in the same way as corporate investment. (Claeys et al. 2016: 2) This second best solution would have the (political) advantage of keeping the EU fiscal framework alive, strengthening the compliance of countries and introduce the net public debt as a common accounting measure. The advantages of this proposal are related to the absence of forecasts, which inevitably leads to errors that weaken the constraint itself and reduce the pro-cyclicality of the expenditure rule.

CDS and the public debt Financial innovation, such as derivatives, is employed by investors to hedge; according to finance theory, the presence of sophisticated financial tools is beneficial for the market and has improved the efficiency of financial markets by reducing pricing errors. In the bond market, the spread between different credit default swaps (CDS) is considered as the measure of risk. The economic literature is critical towards these financial tools, especially because CDS on public debt bonds (i.e., government CDS) are opaque, fuel moral hazard and increase financial volatility (Guzman and Stiglitz 2016). Moreover, it is generally prohibited to underwrite an ­i nsurance contract taking advantage from another person’s death, while this is not the case with government CDS. Guzman and Stiglitz (2016) even suggested to ban any ‘speculative’ trading of government CDS, to stabilize the government debt market and reduce its financial volatility. It is worth observing that any ban can be implemented only after proper information is provided on these OTC instruments by financial and non-­ financial operators. Among the G7, the euro area experienced increasing volatility of government bonds after 2011; since 2016, the risk sentiment has strongly increased as measured by the Sentix index, signalling strong concerns on the strength of the euro zone (i.e., a qualitative measure of market sentiment; Figure 6.6).

Government debt, economic fundamentals and OTC derivatives  139

Figure 6.6  S  entix Index (as of November, 2017). Source: Sentix.de.

Arghyrou and Kontonikas (2012) investigated the role of fundamentals, expectations and contagion in the EMU government debt crisis; during its early stages (i.e., 2009–2010), the European debt crisis was mainly driven by the Greek debt crisis. The authors found ‘evidence suggesting that the sensitivity of government bond spreads to shifts in fundamentals and a measure of contagion has increased during the current crisis period relative to the early crisis period’ (676). They also noted a ‘marked shift in market pricing behaviour from a pre-crisis “convergence-trade” model before August 2007 to one driven by macro-fundamentals and international risk thereafter’ (676). If the change in market behaviour away from the pre-crisis convergence-based model and towards the post-crisis fundamentals-based one persists, then for periphery spreads to decline a marked improvement in fiscal position and macro-fundamentals is necessary. Following this market-driven approach, Aizenman, Hutchinson and Jinjarak (2013) investigated whether the CDS spreads (i.e., measure of government risk of default) are related to economic fundamentals of 50 countries in the 2005–2010 period and found that fiscal space and other economic fundamentals are important and robust predictors of CDS spreads. Among the G7, France, Germany and Italy share common public debt and fiscal policies rules, and the euro, but current fiscal rules are unable to stabilize debt (Claeys et al. 2016). It is relevant to investigate to what extent markets’ expectations matter in these countries and if economic fundamentals reflect in the government risk, because financial market can price the ability of countries to stabilize debt.

140  Chiara Oldani

Empirical findings Following Aizenman et al. (2013), I investigate whether CDS spreads are related to economic fundamentals and fiscal space variables in the EMU countries of the G7: France, Germany and Italy in the 2003–2016 period. These countries engaged in OTC contracts and Italy exhibits the largest losses. Data come from Bloomberg and the World Economic Outlook database of the International Monetary Fund (October 2016); the empirical investigation has been implemented on a single-country level and on panel data with yearly observations from 2003 to 2016. The dependent variable of the estimate is the spread of CDS on 5 years of government of these countries and is provided by Bloomberg. The independent variables, i.e. the macroeconomic fundamentals, are the rate of inflation, the trade balance over GDP, while fiscal variables are the debt over GDP (%, gross or net), the tax revenue over GDP (%) and the structural balance over GDP (%) and are provided by the IMF (WEO, October 2016). The Fiscal Compact treaty considers the structural balance among the most relevant indicators in the fiscal framework. The equation I investigate is the following: CDSit = α Inflationit + β Trade Balanceit /GDPit + χ Debtit /GDPit + δ Tax Revenueit /GDPit + η Structural Balanceit /GDPit + ε it

(1)

where CDS is the spread of CDS over 5 years of government of the ith country (i.e., France, Germany and Italy) over the t period (i.e.,  ­2003–2016); Inflation is the annual percentage change in the inflation rate, Trade ­Balance/GDP is expressed in percentage, Debt/GDP is expressed in percentage for both gross and net debts, Tax revenue/GDP is expressed in percentage, Structural Balance/GDP is expressed in percentage and ε is the error term. At the individual country level, ordinary least squares estimates of ­equation (1) show that macroeconomic fundamentals, especially inflation and ­fiscal space variables, are significantly related to the CDS spread in France ­(Table 6.5); the coefficients of gross and net debts are not statistically significant but have similar magnitude and the same sign. The R 2 of the estimates is high (0.88), confirming the goodness of fit. Results referring to ­Germany show that public debt, macroeconomic fundamentals and fiscal space variables are significantly related to the CDS spread (­ Table 6.6). The R 2 of the estimates is high (0.89), confirming the goodness of fit. Results referring to Italy confirm that public debt and macroeconomic fundamentals are significantly related to CDS spread, while fiscal space variable is not statistically significant (Table 6.7). The R 2 of the estimates is high (0.90) confirming the goodness of fit. Given the small number of observations (less than 20) at the individual country level, the robustness tests cannot be performed.

Government debt, economic fundamentals and OTC derivatives  141 Table 6.5  Ordinary least squares France Dependent variable CDS on 5-year Government bonds (a) Trade balance over GDP p-Value Inflation p-Value Gross debt over GDP p-Value Tax revenue over GDP p-Value Structural balance over GDP p-Value Number of observations R2

35.47 0.172 41.340*** 0.002 −0.83 0.714 74.780* 0.07 −78.450** 0.039 14 0.8891

(b) Trade balance over GDP p-Value Inflation p-Value Net debt over GDP p-Value Tax revenue over GDP p-Value Structural balance over GDP p-Value Number of observations R2

34.42 0.152 41.100*** 0.002 −0.821 0.757 73.980* 0.078 −77.390** 0.032 14 0.8888

CDS = credit default swaps; GDP = gross domestic product. Note: *, **, *** significant at 10%, 5% and 1%, respectively. Data from 2003 to 2016; WEO and Bloomberg.

At the panel data level, before considering whether economic fundamentals and fiscal space variables significantly relate to CDS spread, I consider the financial relationship between the CDS spread, the public debt (gross or net) and the most important yield on debt, over 10 years; this relationship looks at the pricing efficiency of CDS on fundamentals. CDSit = α Debtit /GDPit + β Government Bond Yield 10Yit + ε it

(2)

The stability of pricing of CDS reflects in the efficiency of the price discovery mechanism. At the panel data level, fixed-effects estimates show that the pricing mechanism works well, and explanatory variables are statistically significant (Table 6.8). The R 2 (within) of the estimates is 0.54, confirming the goodness of fit. Fixed-effect estimates of equation (1) show that macroeconomic fundamentals, that is, inflation, trade balance, structural balance and gross debt, are significantly related to the CDS spread in France, Germany and Italy (Table 6.9).

142  Chiara Oldani Table 6.6  Ordinary least squares Germany Dependent variable CDS on 5-year Government bonds (a) Trade balance over GDP p-Value Inflation p-Value Gross debt over GDP p-Value Tax revenue over GDP p-Value Structural balance over GDP p-Value Number of observations R2

8.380** 0.024 20.170*** 0.001 2.240*** 0 37.180*** 0.001 −25.680*** 0.005 14 0.8993

(b) Trade balance over GDP p-Value Inflation p-Value Net debt over GDP p-Value Tax revenue over GDP p-Value Structural Balance over GDP p-Value Number of observations R2

10.790*** 0.003 21.710*** 0.001 3.210*** 0.001 47.470*** 0 −29.190*** 0.001 14 0.8872

CDS = credit default swaps; GDP = gross domestic product. Note: *, **, *** significant at 10%, 5% and 1%, respectively. Data from 2003 to 2016; WEO and Bloomberg.

The R 2 (within) of the estimates is 0.53, confirming the goodness of fit. When considering net debt, the goodness of fit drops to 0.49, and only inflation and debt are statistically significant. This result confirms that financial markets can price the ability of countries to stabilize debt and rely on gross debt. Although empirical results cannot be generalized, in the 2003–2016 period in Italy, France and Germany, fiscal space variables (structural balance, net/gross debt and tax revenue) and economic fundamentals (inflation and trade balance) significantly correlate with government risk, as measured with CDS on 5-year government bonds, at both individual country and panel levels. These findings confirm that economic fundamentals reflect in the government risk; market expectations are reflected in the OTC derivatives market, and sound public debt management rules are reflected in the pricing mechanism of bonds and spreads.

Table 6.7  O  rdinary least squares Italy Dependent variable CDS on 5-year Government bonds (a) Trade balance over GDP p-Value Inflation p-Value Gross debt over GDP p-Value Tax revenue over GDP p-Value Structural balance over GDP p-Value Number of observations R2

−22.65 0.108 75.360** 0.002 12.240** 0.002 11.65 0.656 −15.71 0.637 14 0.9034

(b) Trade balance over GDP p-Value Inflation p-Value Net debt over GDP p-Value Tax revenue over GDP p-Value Structural balance over GDP p-Value Number of observations R2

−27.260*** 0.001 72.430*** 0.003 14.600*** 0.001 11.71 0.674 −9.16 0.785 14 0.9086

CDS = credit default swaps; GDP = gross domestic product. Note: *, **, *** significant at 10%, 5% and 1%, respectively. Data from 2003 to 2016; WEO and Bloomberg.

Table 6.8  Germany, France and Italy CDS, debt and yield Fixed-effects (within) regression 2003–2016 Dependent variable CDS spread on 5-year Government bonds Gross debt GDP s.e. Net debt GDP s.e. 10-Year government bond yield s.e. Constant s.e. Number of observations R 2 (within)

5.21*** (0.86)

31.57*** (7.70) −459.07*** (84.89) 42 0.52

6.20*** (0.98) 36.21** (7.84) −397.87*** (72.26) 42 0.54

CDS = credit default swaps; s.e. = standard error; GDP = gross domestic product. Note: *, **, *** significant at 10%, 5% and 1%, respectively. Data from 2003 to 2016; WEO and Bloomberg.

144  Chiara Oldani Table 6.9  G  ermany, France and Italy CDS determinants Fixed-effects (within) regression 2003–2016 Dependent variable CDS spread on 5-year Government bonds Gross debt GDP s.e. Net debt GDP s.e. Tax revenue GDP s.e. Structural balance GDP s.e. Trade balance GDP s.e. Inflation s.e. Constant s.e. Number of observations R 2 (within)

5.031*** (1.00)

−1.1 (2.80) 16.66* (8.25) −16.98** (7.46) 35.71*** (10.25) −344.77** (160.23) 42 0.53

5.22*** (1.13) 1.83 (2.78) 13.65 (8.68) −12.18 (7.66) 38.45*** (10.82) −398.27** (170.10) 42 0.49

CDS = credit default swaps; s.e. = standard error; GDP = gross domestic product. Note: *, **, *** significant at 10%, 5% and 1%, respectively. Data from 2003 to 2016; WEO and Bloomberg.

Conclusions The financial crisis has contributed to increasing the debt-to-GDP ratio in G7 countries that intervened to ensure a softer landing for their economies; the outlook is especially tough for G7 countries with a debt-to-GDP ratio greater than 100% and sluggish economic conditions that undermine debt sustainability. The stockpiling of public debt in the presence of slow growth makes policy coordination highly desirable, from an economic point of view, to reduce the risks created by regulatory arbitrage and moral hazard. However, the Taormina Summit of G7 Leaders in May 2017 clearly confirmed that policy coordination is not a priority, especially in the financial sector; the shift from multilateralism to nationalism and the spreading anti-­ globalization have increased the balkanization of the global financial system, i.e. the distance among domestic financial regulations. These divergent forces will produce inevitable financial risks, affecting also government debt. The balkanization of financial markets should be reversed since their resilience depends on the soundness of financial markets infrastructures, ­ including OTC trading. The limited availability of accounting data on the use of derivatives by public administrations constitutes a barrier to the full understanding of risks involved. Governments should adhere to the centralized counter party system and the collateralized system of trading. ­Specifically, G7 countries should coordinate and introduce common rules

Government debt, economic fundamentals and OTC derivatives  145 related to the trading of OTC derivatives by public administrations, regulating accounting, data availability, counterparty risk and liquidity management, in order to effectively manage financial risks and safeguard financial stability. The lack of information and data on OTC derivatives trading on government bonds (and their counterparts) limits the investigations that can be implemented and the scope for counter-factual analyses. Among G7 countries, the European fiscal framework in the near future should make a step further in order to guarantee effective debt sustainability and foster growth; most European countries will not match the 60% debt-to-GDP ratio in 2031, even if they comply with current fiscal rules. This deep policy inconsistency fuels anti-globalization and anti-European movements. The EU should move away from badly measured accounting criteria, reducing the financial risks that affect the government debt. Various proposals are on the table, but a radical change is unlikely to take place; a feasible solution would be the modification of the current framework to drop all rules related to the badly measured structural balance indicator and to adopt an expenditure rule with a debt-correction mechanism, in the context of a multi-annual fiscal framework. The economic and finance literature has investigated whether economic fundamentals are reflected in the government risk, confirming the efficiency of the pricing discovery mechanism of OTC derivatives; although the empirical results presented in this chapter cannot be generalized, in the 2003–2016 period in Italy, France and Germany, fiscal space variables (structural balance, net/gross debt and tax revenue) and economic fundamentals (inflation and trade balance) significantly correlate with government risk, as measured with CDS on 5-year government bonds, at both individual country and panel data levels. This empirical evidence further confirms that financial markets are able to price the stabilization ability of public debt, and thus can detect the lack of such capacity. This has relevant political consequences and should be addressed by supranational organizations, like the IMF and the UN. The ban of contracts such as CDS on governments may look like a very simplistic solution, but it can be a first step towards a new wave of regulatory coordination that puts national and domestic needs of G7 countries first, when it comes to financial regulation, public debt management and restructuring process.

Note 1 Data were retrieved from the Bruegel sovereign bond holding data set, updated on March 2017.

References Aizenman, Joshua, Michael Hutchison, and Yothin Jinjarak. 2013. “What is the Risk of European Sovereign Debt Default? Fiscal Space, CDS Spreads and Market Pricing of Risk.” Journal of International Money and Finance 34: 37–59.

146  Chiara Oldani Arghyrou, Michael G., and Alexandros Kontonikas. 2012. “The EMU Sovereign Debt Crisis: Fundamentals, Expectations and Contagion.” Journal of International Financial Markets, Institutions & Money 22: 658–677. Banca d’Italia. 2016. “The Precautionary Recapitalization of Monte dei Paschi di Siena.” Rome, December, 2016. Bank of International Settlements BIS. 2014. “Regulatory Reforms of Over-TheCounter Derivatives: An Assessment of Incentives to Clear Centrally.” Basel, October 2014. Claeys, Grégory, Zsolt Darvas, and Álvaro Leandro. 2016. “A Proposal to Revive the European Fiscal Framework.” Bruegel Policy Contribution n. 7, Brussels. De Larosiere, Jacques. 2009. “The High-Level Working Group on Financial Supervision in the EU.” Report to the European Commission. Brussels, February 2009. Elliott, Douglas J. 2017. “Implications of the Trump administration for financial regulation.” Oliver Wyman, Marsh & McLennan Companies, UK, January 16, 2017. www.oliverwyman.com/our-expertise/insights/2017/jan/implications-of-thetrump-administration.html. European Commission. 2016. “Fiscal Sustainability Report.” Brussels. EUROSTAT. 2014. “Measuring Net Government Debt: Theory and Practice.” Statistical working paper. Luxembourg: Publication Office of the European Union. EUROSTAT. 2017. “News Release Euro Indicators, Debt of Member Countries.” January 23, 2017. http://ec.europa.eu/eurostat/documents/2995521/7826125/2-2301 2017-AP-EN.pdf/2c7f83e4-7db7-42e0-b6f8-bee8d10f6fa2. Fantini, Giulia, and Chiara Oldani. 2017. “The Use of OTC Derivatives by Italian Regions: For Hedging or Trading Purposes?” The IUP Journal of Financial Risk Management 14, no. 1: 7–15. G8 Leaders. 2009. “Final Statement.” L’Aquila, Italy, 8-10 July. Giovannini, Alberto. 1997. “Government Debt Management.” Oxford Review of Economic Policy 13, no. 4: 43–52. Guglielmi, Antonio, Javier Suárez, Carlo Signani, and Marcello Minenna. 2017. “Country Update: Italy – Re-Denomination Risk Down as Time Goes By.” Mediobanca Securities, January, 19, 2017. Guzman, Martin, and Joseph E. Stiglitz. 2016. “A Soft Law Mechanism for Sovereign Debt Restructuring.” International Policy Analysis, Friedrich Ebert Stiftung, October 2016. International Monetary Fund. 2016a. “Wold Economic Outlook.” Washington, DC, October 2016. International Monetary Fund. 2016b. “Global Financial Stability Report.” ­Washington, DC, October 2016. Lall, Robert. 2014. “Timing as a Source of Regulatory Influence: A Technical Elite Network Analysis of Global Finance.” Regulation & Governance 9, no. 2: 125–143. Lombardi, Domenico, and Samantha S. Amand. 2015. “Italy’s Sovereign Debt C ­ risis: Assessing its Origin and the Policy Response.” Economia Italiana 1–3: 61–100. Minenna, Marcello. 2016. “Il debito italiano al tempo della [nuova] lira.” Gli Stati Generali s.r.l, November 17, 2016. www.glistatigenerali.com/banche_euro-e-bce/ildebito-al-tempo-della-nuova-lira/. OECD. 2007. Use of Derivatives for Debt Management and Domestic Market Development. Paris: OECD Publishing. OECD. 2011. “Regulatory Reform of OTC Derivatives and Its Implications for Sovereign Debt Management Practices: Report by the OECD Ad Hoc Expert Group

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7 Growth and productivity in the G7 The impact of foreign capital composition and institutional quality Tatiana Cesaroni and Roberta De Santis Introduction The central role of international capital transactions during the financial and sovereign debt crises in the European Union (EU) has encouraged policy discussions, in the G7 framework, on the benefits and costs associated with capital mobility in a globalized framework. International holdings and international transactions are classified into the following broad categories: (1) portfolio investment, divided into equity securities and debt securities, including bonds and money market instruments; (2) foreign direct investment, referring to equity participations above 10%; (3) other investment, including debt instruments such as loans, deposits and trade credits; and (4) financial derivatives and reserve assets. International capital transactions might support long-term growth and convergence among countries, but at the same time they might also determine policy challenges associated with current account sustainability and financial stability. Furthermore, the outlook following the two crises has been characterized by downside risks, rising inequality, criticisms against globalization and waves of protectionism also fostered by the rise of political populism. Growing inequality in the aftermath of the financial crisis has become ­particularly worrisome because of its economic and political implications. ­Inequality hinders economic growth, worsens expectations, spreads discontent and distrust and leads to a rise in protectionism and populism. This scenario has made the reform of the international financial architecture more difficult. To foster a smooth functioning of the international financial system and to avoid an uneven distribution of risks and resources, financial regulation needs to be stabilized, limiting regulatory uncertainty and improving the institutional environment. A broader and more coordinated international strategy of capital flow management is also needed to adjust global financial markets towards financial stability. In the last two decades, the main components of the international ­investments position of G7 countries, namely foreign direct investments, portfolio debt investments and portfolio equity investments, have diverged

Growth and productivity in the G7  149 significantly. While in some countries there has been a change of the composition towards foreign capital components, which are usually seen by the relevant literature as more stable and productive, in the other members of G7 countries, on average, the opposite has occurred. As for EU countries, following the introduction of the euro, imbalances emerged when countries in the periphery received large capital inflows ­(Cesaroni and De Santis 2016). After 2000, productivity diverged, with peripheral countries experiencing, on average, slower productivity growth than core countries. Economists and policymakers often conjecture that the decline in productivity resulted from a misallocation of financial resources across firms or sectors in the south of Europe. Financial systems play a central role in boosting the productivity by ­allocating resources efficiently and facilitating investment and innovation. Yet, financial systems are also prone to ‘booms and busts’, which can ­negatively affect the productive sector. Indeed, in the aftermath of the 2008 global financial crisis, productivity growth stagnated across advanced economies despite very accommodative monetary conditions. Prior to the crisis, productivity had already been slowing in some G7 countries. From a pure financing perspective, an aggregate measure of all forms of financial capital is the relevant indicator for examining the impact of foreign capital on growth. Not all types of capital, however, are the same in terms of their allocation and effects on productivity and growth. The literature focusing on advanced economies clearly indicates an order of preference for capital flows, based on decreasing economic performance and increasing riskiness: firstly, foreign direct investments (FDI); secondly, portfolio equity investment (PEI); and lastly, portfolio debt investments (PDI). ­Capitals such as FDIs are considered more stable and growth friendly and less prone to reversals (Wei, 2002; Albuquerque, 2003), while there is a general consensus that portfolio debt investments generate the greatest risks from ­fi nancial openness and less returns in terms of productivity and growth ­(Alfaro, Kalemli-Ozcan, and Volosovych 2014; Gourinchas and Jeanne 2013; Gourinchas and Rey 2013; MacDonald 2015 for a theoretical derivation of the predicted positive relationship between productivity growth and capital inflows). It is worth to underline that, as emphasized in the literature, the composition of foreign capitals is also related to the country-specific economic and institutional features. In this chapter, we analyse the dynamics of institutional quality, ­foreign capital composition, gross domestic product (GDP) growth and productivity in G7 countries in the 1996–2015 period. In particular, we assess whether the heterogeneity of economic performance in G7 countries was at least partly determined by different institutional quality-­i nduced ­foreign asset compositions. These findings might have interesting ­p olicy implications. For ­example, in globalized contexts, differences in institutional ­quality, determining different capital components

150  Tatiana Cesaroni and Roberta De Santis mix with different rates of ­r eturn in terms of growth and productivity, might undermine the endogenous process of convergence and catching up predicted by neoclassical theories and increase inequality within and between countries. Pellegrino and Zingales (2017) studied merit-based management in Italian firms and provided evidence that this approach faces more obstacles in Italy, than in other European countries, particularly when it comes to dealing with public bureaucracy or obtaining credit. These findings indicated that a tentative policy recommendation is, at least in the case of Italy, to remove those institutional barriers (such as corruption or judicial inefficiency) that suppress merit and contribute to cronyism. In this chapter, we focus on the role of institutional quality as a driver of a more growth-friendly net foreign asset composition. We explore the linkages between the heterogeneity in institutional quality levels in the G7 countries and their growth and productivity levels. To reduce possible growth differentials, the G7 countries have the opportunity to take the lead on promoting an internationally coordinated policy mix which takes advantage of the interaction among structural reforms on both national and ­i nternational levels to promote the improvement of institutional quality, thus creating a virtuous circle of ‘better institutional quality – more ­fi nancial stability – more economic growth – low inequality’ (Acemoglu, Johnson, and ­Robinson 2005). A quicker economic pace would ensure lower levels of unemployment, higher public revenues and lower public expenditures. This would provide more space for redistributive programs and structural reforms aimed at reducing inequality, without weighing on the economy. The chapter is organized as follows: The second and third sections report the main stylized facts on economic performance, foreign asset composition and institutional quality within the G7 countries, over the last 20 years; the fourth section describes the statistical associations among relevant indicators (namely growth, institutional quality indicators, capital flows and productivity). Conclusions and policy implications follow.

International holdings composition, growth and productivity in G7 countries In most of the G7 member countries, economic growth accelerated in the ­second half of the 1990s, driven by the intensification of g­ lobalization. ­However, in European countries, namely France, Germany and Italy, it r­ emained ­below that of the United States (U.S.), starting a widespread debate on the ‘­decline’ of the European economy (Saccomanni and ­Romano  2017). ­Moreover, the benefits from economic integration have accrued d ­ isproportionately to higher income groups and to owners of capital. In the period examined (1996–2015), G7 countries can be roughly clustered into three main groups by considering the GDP per capita levels and

Growth and productivity in the G7  151 140.0 135.0 130.0 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0 1996 Canada

1998

2000

France

2002 Germany

2004 Italy

2006

2008 Japan

2010

2012

United kingdom

2014

2016

United States

Figure 7.1  G7 GDP per capita (levels, 1996=100).

Figure 7.2  G7 average real GDP growth rates (%).

the real GDP growth rates (Figures 7.1 and 7.2). The first group includes the U.S., the United Kingdom (UK) and Canada, the second France and ­Germany (the latter joined the first group after the financial crisis) and the third Italy and Japan lagging behind in terms of economic performance. The multifactor productivity (MFP) index for the total economy is the difference between the rate of change of output and the rate of change of total inputs, shares of compensation of labour input and of capital inputs in total costs for the total economy measured at current prices and total inputs calculated as volume indices of combined labour and capital inputs for the total economy. The indices have been constructed as weighted averages of

152  Tatiana Cesaroni and Roberta De Santis the rate of change of total hours worked and the rate of change of capital services. Price indices for information and communication technology assets are those published by the US Bureau of Economic Analysis, corrected for overall inflation in each country. The MFP index is an overall measure of the economic performance, including the impact of spillovers and positive externalities across economic sectors, and presents similar heterogeneous performances in the G7 countries (Figure 7.3). More specifically, while empirical estimates vary as to the magnitudes of pre- and post-crisis rates of MFP growth seen in each of the G7 countries, a consistent finding is that a generalized decline in average rates of MFP growth is broadly detectable across all G7 countries since the mid-1990s. In France, Germany and Italy, MFP performance had been lacklustre, in comparison with the U.S., the UK and Canada. As suggested by Alfaro, Kalemli-Özcan and Volosovych (2014), ­MacDonald (2015) and Gopinath, Kalemli-Özcan, Karabarbounis and Villegas-Sanchez (2015), part of this heterogeneity might be related to the various outcomes of the globalization process in terms of differing foreign capital composition that, in turn, may have caused misallocation of financial resources across firms or sectors. As a result of the intensification of the globalization process, international capital flows in the G7 economies have increased considerably over the past two decades, despite a temporary contraction during the 2007 global crisis. The latter resulted in a sharp reduction in international capital flows that ­initially affected mainly international banking flows among advanced economies and subsequently spread to other countries and different asset classes. International capital flows have rebounded since the spring of 2009, driven by a bounce-back in portfolio investment from advanced to ­emerging ­market economies. In Europe, the elimination of capital controls

Figure 7.3  G7 average multifactor productivity.

Growth and productivity in the G7  153 in the 1980s and early 1990s, the introduction of common currency in 1999 and the harmonization of financial regulations reduced transaction costs, increased the elasticity of substitution between assets issued by the individual member states and, therefore, increased the exchange of foreign capitals. This boom intensified from 2003 onwards and was especially pronounced in relation to international debt flows. In particular, the perceived high substitutability of common currency bonds in a low-risk environment increased cross-border debt flows. In addition to the great increase in the scale of gross flows, persistent and large-scale net financial imbalances within the euro area also emerged during this period. In the aftermath of the crisis, these trends were reversed. In this context, prices and exchange rate movements played a very relevant role. The appreciation of the euro against the dollar during 2002–2007 meant that euro area economies suffered valuation losses on dollar-denominated assets. The performance of the US stock market, relative to the Europeans, further meant that the net external positions for European countries declined due to the rise in the value of portfolio equity liabilities, relative to the value of portfolio equity assets. However, the contribution of these forces differs across G7 countries, in line with the gross scale of international balance sheets and the composition of assets and liabilities across portfolio equity, debt, reserves and FDI. Looking at the composition of net foreign asset stocks in the G7 countries as a whole (Figure 7.4a), we note that starting at the end of 1999, on average,

Figure 7.4  Net foreign assets components in the G7 group, in the EA and out of the EA (extra EA).

154  Tatiana Cesaroni and Roberta De Santis there was an increase in PEI net assets, an almost specular reduction in net PDI and a substantial stability of net FDI. The trends described above are the results of heterogeneous behaviours at country level, within the G7 group. To account for such differences, we first disentangle the sample of countries in two groups – euro area (EA) including France, Germany and Italy, and extra euro area (extra EA), including Canada, the UK, the U.S. and Japan, and then we analyse the country-level trends. The dynamics of the ratio of net FDI, PEI and PDI assets to GDP for EA and non-EA countries are reported in Figure 7.5b–d. The net PEI assets-to- GDP ratio shows, for most of the period, a symmetric behaviour for EA and extra EA groups, except for the phase immediately following the creation of eurozone until the 2007 economic and financial crisis. In those years, the growth in net assets to GDP portfolio equity in Italy, Germany and France taken together was accompanied by a reduction in net assets for the rest of the G7 countries (namely the U.S., the UK, Japan and Canada). Figure 7.4b evidences an increase in PEI net assets in the EA countries and a correspondent decrease in the extra EA countries. After the global financial crisis, the opposite trends occurred. The net FDI assets, with some volatility, display the same growing trend for both groups, until 2008; afterwards the trends diverged with an increase in FDI net assets in the EA countries and a decrease in the extra EA countries. The net PDI assets in the two groups of countries display a common decreasing trend until 2004, and afterwards there is an indication of heterogeneous trends with an evident decrease of PDI net assets in the extra EA countries. This diverse behaviour is even more evident looking at single country trends (Figure 7.5a–f). For the FDI net assets to GDP ratio (Figure 7.5c and d), we find, especially after 2008, a common increasing trend for EA countries, although with different dynamics, while in non-EA countries the trend is quite heterogeneous especially for Japan and the UK (Figure 7.2d). The PEI net assets to GDP ratio (Figure 7.5a and b) shows fairly heterogeneous trends for EA countries, in the aftermath of the financial crisis, in particular, a common stable trend for Germany and France, and an increasing trend for Italy. Despite some volatility, extra EA countries show a sort of mean reversion behaviour, with the exception of Canada that, after 2010, displays a sharp increasing trend. The PDI (Figure 7.4e and f) in France and Italy followed a common decreasing trend, while following the introduction of the euro, Germany shows an increasing trend. As for the extra EA countries, Japan shows a moderate increasing trend until the financial crisis, and then a mild reversal towards lower levels, if compared with those of other non-EA G7 countries. The UK, the U.S. and Canada show a similar increasing trend between 2004 and 2013, when the UK displayed an even sharper increase of PDI net assets.

Figure 7.5  G7 net foreign assets components (PEI, FDI and PDI).

156  Tatiana Cesaroni and Roberta De Santis

Figure 7.5  (Continued).

Institutional quality in G7 countries: stylized facts As already mentioned, the idea that institutional quality plays a distinctive role in influencing foreign capital composition also in advanced countries is widely acknowledged in economics literature. Over the last decades, G7 countries have been at the forefront of globally promoting well‐developed institutional frameworks with a coordinated approach to favour structural reforms aimed at improving institutional quality. Consistently with economic theory and empirical evidence on the relationship between institutional quality and economic development, GDP per capita levels in the G7 countries rank among the highest in the world, despite some heterogeneity. Much of the literature concurs that institutional quality is an important catalyst for economic growth, and its deterioration may undermine mediumto long-term economic growth (Acemoglu, Johnson, and Robinson 2005). Moreover, countries with weak institutions are less able to raise international funding in domestic currency, and their foreign exchange borrowing is quite limited and biased towards less productive international source of financing. Along the same lines, it has emerged that countries characterized by a weak institutional framework tend to devalue more often their currency to increase their flexibility during economic crisis, but gains are only temporary

Growth and productivity in the G7  157 because of their structural inefficiencies. In contrast, countries with better political governance achieve a higher quality of public spending and are able to revalue their currency, as lower public spending and its efficiency support larger net savings and, thus, positive trade balance (Faria, Lane, Mauro, and Milesi Ferretti 2007). In what follows, we analyse three sub-periods: prior to (1996–1999) and following the introduction of the euro (2000–2008), as well as the aftermath of the financial crisis (2009–2015), to examine the extent to which ­institutional quality of G7 countries has changed overtime. As a measure of ­institutional quality, we use the Worldwide Governance Indicators (WGI) published by the World Bank since 1996, covering over 200 countries. [For an in-depth methodological explanation of this index, refer to Kaufmann, Kraay and Mastruzzi (2010).] These aggregate indicators combine the views of a large number of ­enterprises, citizens and experts interviewed through surveys conducted in industrial and developing countries. They are based on over 30 ­individual data sources produced by a variety of survey institutes, think tanks, non-governmental organizations, international organizations and private sector firms. The estimate of governance ranges from approximately −2.5 (weak) to +2.5 (strong) governance performance. The WGI index comprises six governance indicators. The first two ­indicators (voice and accountability; political stability and absence of ­violence/terrorism) are related to the process by which governments are selected, monitored and replaced. The second two indicators (government ­effectiveness; regulatory quality) are associated with the capacity of the ­government to effectively formulate and implement sound policies. The last two indicators (rule of law; control of corruption) concern the respect of citizens and the state for the institutions that govern economic and social interactions among them. We also built a composite indicator from the six dimensions, giving the same weight to each dimension, since there are no elements indicating the need to weigh the dimensions differently. Figures 7.6–7.8 present the average score of the WGI composite indicator and of the six governance dimensions indicators for G7 countries. Following recent years of economic crisis and the imposition of fiscal austerity measures and economic reforms, accompanied by increasing voter dissatisfaction with ruling parties, there are indications that the perceived institutional quality may have been weakened. Despite the G7 countries’ recent deep economic crisis and their struggling recovery, most of the G7 countries still rank among the world’s most developed countries in terms of institutional quality. In interpreting the analysis, however, we need to take into account all the caveats necessary when using signals coming from qualitative survey indicators. Institutional differences across G7 countries are obviously far less marked than those between advanced and emerging countries. All members of the G7 are democracies that recognize full commitment to the rule of law.

158  Tatiana Cesaroni and Roberta De Santis

Figure 7.6  G7 institutional quality composite indicator.

Figure 7.7  Institutional quality WGI dimensions (France, Germany and Italy).

­ evertheless, the disparity in terms of institutional quality is evident for the N composite indicator and for each of the six dimensions. From the descriptive analysis of institutional quality indicators, we derive the following findings. As for the composite indicator: (1) the institutional quality, on average, has been higher in Canada, Germany and the UK and lower in Italy, France and Japan, across the three periods under observation (see also Cesaroni and De Santis, 2018); (2) the global financial crisis and the subsequent slow recovery process have had a negative impact on G7 economies and have also affected negatively institutional quality, with the exceptions of Canada and Japan; (3) in the three periods, Japan was the only G7

Growth and productivity in the G7  159

Figure 7.8  Institutional quality WGI dimensions (Canada, Japan, the UK and the U.S.).

country showing a substantial improvement in institutional quality, while Italy, the UK and the U.S. give indication of its worsening, and Canada, France and Germany show substantial stability. The analysis of the six dimensions separately confirms, with few exceptions, the previous findings. For example, a very high heterogeneity can be detected in the control of corruption, political stability and government ­effectiveness dimensions. These findings of a significant heterogeneity among G7 countries show that there is room for policy coordination among countries to foster stable growth and convergence. Therefore, the G7 should act to increase the quality of their institutions.

Foreign capital composition, institutional quality and productivity: a statistical exercise In what follows, we present correlation indexes for G7 countries as a whole, between MFP, real GDP growth rate, institutional quality and various measures of foreign capitals, for the 1996–2007 period. We selected this period to avoid the bias due to the financial and sovereign debt crises. In selecting growth measures, we followed the literature and, in ­particular, Gourinchas and Jeanne (2013), and Prasad, Rajan and Subramanian (2007); Alfaro, Kalemli-Ozcan and Volosovych (2014) use real GDP growth for the U.S. We use MFP index and real GDP growth rate that is provided by the Organisation for Economic Co-operation and Development (OECD) and a composite index of institutional quality, derived by the WGI provided by the World Bank. As measures of foreign capital components, we use stocks normalized by GDP. We analyse both net and gross assets and liabilities stocks, as well as assets stocks and liabilities stocks separately. All the fi ­ gures for foreign capital components are taken from the External Wealth of the N ­ ations database,

160  Tatiana Cesaroni and Roberta De Santis updated by Lane and Milesi Ferretti. The latter contains data on foreign assets and foreign liabilities for a large sample of countries for the 1970–2015 period. It also reports, where available, the split between ‘portfolio investment: debt securities’ and ‘other investment’, for both the categories of ‘external debt assets’ and ‘external debt liabilities’ (Lane and Milesi Ferretti 2007, 2015). Table 7.1 summarizes the main statistics in the G7 economies for gross and net capital stocks components, assets and liabilities stocks components as GDP ratio, over the last 20 years (1996–2015). Looking at the results, we can see that the magnitude and the volatility of gross capital stocks (assets plus liabilities) are large, in both absolute and relative terms, with respect to the size and the volatility of net capital stocks: this result is consistent with the literature (Broner, Didier, Erce and Schmukler 2013). If we focus on the various capital components, it is clear that PDI is the most volatile component (3–4 times the volatility of PEI and FDI), followed by PEI and FDI. PDI is also the component with the largest average magnitude. To inspect a potential causal relationship between capital components, growth and institutional quality in the G7 economies, Table 7.2 shows the correlation between PEI, PDI and FDI assets, liabilities, gross and net stocks to GDP and MFP, GDP growth and governance (proxy by the WGI), over the 1996–2007 period. The statistical evidence in Table 7.2, despite being very approximate, is in line with the literature that, as already underlined, clearly indicates an order of preference for capital stocks, in terms of growth and productivity returns. As expected, the indexes show a relatively higher positive correlation between FDI and MFP, as well as with GDP growth rate, compared to the other two components. For the G7 group as a whole, with few exceptions, the correlation between assets and liabilities positions of net international investment position components and MFP and GDP growth is positive and significant. With the exception of PEI and PDI, also net foreign asset positions are positively associated with both TFP and GDP growth. Table 7.1  S  ummary statistics for G7 countries – 1996–2015 (obs140) Variable

Mean

Std. dev.

Min

Max

pei_net_gdp fdi_net_gdp pdi_net_gdp gross_pei_gdp gross_pdi_gdp gross_fdi_gdp pei_ass_gdp pei_liab_gdp pdi_ass_gdp pdi_liab_gdp fdi_ass_gdp fdi_liab_gdp

0.02 0.10 −0.19 0.5 2.05 0.7 0.26 0.24 0.94 1.11 0.40 0.30

0.10 0.08 0.23 0.26 1.52 0.40 0.14 0.14 0.75 0.79 0.22 0.19

−0.22 −0.06 −0.59 0.1 0.61 0.06 0.03 0.06 0.21 0.26 0.06 0.01

0.38 0.35 0.34 1.31 6.86 1.64 0.68 0.65 3.25 3.64 0.88 0.77

Growth and productivity in the G7  161 Table 7.2  C  orrelation indexes for G7 group – 1996–2007 (stocks/GDP)

dPei asset dPei liabilities dPei_net dPei asset+liab dPdi asset dPdi liabilities dPdi_net dPdi asset+liab dFdi asset dFdi liabilities dFdi_net dFdi asset+liab

dMFP

dGDP

WGI

0.1 0.3 −0.2 0.2 0.2 0.1 0.01 0.2 0.3 0.2 0.4 0.3

0.4 0.2 0.2 0.3 0.2 0.3 −0.4 0.2 0.4 0.4 0.1 0.4

0.5 0.3 0.2 0.4 0.2 0.2 −0.3 0.2 0.6 0.6 0.3 0.6

Italic values represent not statistically significant values.

It is worth noting that for the three components also the gross position and the assets are positively correlated with MFP and GDP growth. While this finding would be counterintuitive for developing countries, in the context of advanced economies, it suggests that the explanation for the relationship ­between growth and foreign capital composition has to go beyond financing (i.e., liabilities). In G7 countries, financing is not all that matters, but the explanation of the relationship between foreign asset components and productivity growth has to be related to the international reorganization of production, for example, through global value chains (GVCs). The emergence of the GVC has given firms the ability to unbundle their production processes in different locations, in an effort to reduce production costs and increase productivity. By definition, a part of this process occurs through international capital transactions. As for FDI, not only financing (liabilities) but also investments abroad (assets)”. might determine positive productivity spillovers for the investing country through the possibility to obtain technological progress and low-price production factors from the hosting country. In as far as institutional quality is concerned, there is, as expected, a positive correlation between all foreign capital components (assets, liabilities, gross and net) and the WGI composite indexes, with the only exception of PDI net assets to GDP ratio. The coefficients of greater magnitude, in line with the literature, are those related to FDIs (see, e.g., Faria, Lane, Mauro and Milesi Ferretti 2007). Moreover, this direct relationship does not take into account the possibility of additional institutional quality catalyst effects, suggesting that higher degrees of institutional quality might increase the rate of return in terms of growth and productivity of foreign capital via, for example, a better allocation of capital across sectors.

162  Tatiana Cesaroni and Roberta De Santis We believe that this peculiar aspect calls for further and deeper research assessing whether the fact that some G7 countries performed worse in terms of productivity, despite receiving and investing in foreign capitals more than other countries, might depend also on the so called financial ­resource curse (Benigno, Converse and Fornaro 2015). This theory ­suggests that an ‘easy’ (and possibly not consistent with country fundamentals) ­access to foreign capitals might produce a misallocation of productive resources. The literature, thus, supports the assumption that in the presence of high degree of institutional quality, the likelihood of misallocation of productive foreign financial resources is lower (see Kiminori (2014) for a ­theoretical model). To fully understand the role and the effects of capital movements on productivity and growth in G7 countries, Table 7.3 reports preliminary static panel data Table 7.3  G  DP growth, productivity and foreign capital components: preliminary associations (static panel data, fixed-effects regressions) Variables dpei_ass_gdp

dGDP

dMFP

0.28** (0.12)

dpei_liab_gdp

−1.25 (1.22) 0.15 (0.12)

dpei_net_gdp

0.90 (1.23) 0.25 (0.16)

dgross_pei_gdp dpdi_ass_gdp

0.13* (0.06) 0.11*** (0.03)

dpdi_liab_gdp

0.10*** (0.03)

−0.37 (0.30) −0.07 (0.11)

dgross_pdi_gdp

0.90 (1.15) 0.06*** (0.02)

0.21** (0.09)

dfdi_liab_gdp

−0.19 (0.16) 0.53 (0.89)

0.37*** (0.10)

dfdi_net_gdp

−1.03 (1.13) −0.10 (0.18)

dgross_fdi_gdp Obs. Number of ifs_code

−0.10 (0.66) −0.37 (0.34)

dpdi_net_gdp

dfdi_ass_gdp

−4.05** (1.62)

84 7

84 7

84 7

4.71*** (1.72) 0.15*** (0.05) 84 84 7 7

Standard errors in parentheses. ***p < 0.01, **p < 0.05, *p < 0.1.

84 7

84 7

−0.04 (0.52) 84 7

Growth and productivity in the G7  163 estimates accounting for the associations between the different foreign capital components and GDP growth and MFP. The estimates are very approximate, preliminary and subject to some caveats (i.e., the limited sample available for the analysis and the possible endogeneity between growth measures and foreign capital measures). The preliminary evidence is in line with the literature; the correlation indexes show a greater association between FDIs and GDP growth than for the other two components. As for MFP, the results are not conclusive and call for deeper and more accurate statistical and econometric analysis. Since the capital composition for the G7 group as a whole is the result of a certain degree of heterogeneity at country level, to better understand the dynamics of productivity and capital stocks across countries, in Figures 7.9

Italy 1

2

3 (mean) gross_pdi_gdp

4

1

France Germany Canada

Japan

.072

United States .1

.6 (mean) gross_pei_gdp

.8

1.5

United Kingdom

(mean) mfp .5 1

France Germany Canada

0

Japan

Italy 0

.2

.4 .6 .8 (mean) gross_fdi_gdp

1

.5

United Kingdom

Germany France

Canada

United States 0

1

United States

.3 .4 (mean) gross_pei_gdp

Italy

1

2 (mean) gross_pdi_gdp

3

4

United Kingdom

Japan

(mean) gdpus_growth .066 .068 .07 .072 .074 .076

.4

.2

Japan

Italy .2

France Canada

(mean) gdpus_growth .066 .068 .07 .072 .074 .076

1.5

United Kingdom

(mean) mfp .5

.07

5

United States

0

Italy

.066

.5

Canada Japan

Germany

.068

(mean) gdpus_growth

1

France Germany

0

(mean) mfp

.074

United States

United Kingdom

Japan

.076

1.5

United Kingdom

Germany Italy

France Canada

United States

0

.2

.4 .6 (mean) gross_fdi_gdp

.8

Figure 7.9  Gross PEI, PDI and FDI versus GDP growth and versus MFP. Source: Author elaboration on External Wealth of the Nations (EWN) database (2015) http:// www.philiplane.org/EWN.html.

1.5

France

Germany Canada

.5

Japan

0

.02

Germany

1

United States

(mean) mfp

.06 France

.04

United Kingdom United States

Italy

-.05 0 .05 (mean) pei_net_gdp

Canada

United Kingdom

-.05 0 .05 (mean) pei_net_gdp

.1

United Kingdom United States

Canada

Japan

0

.02

Germany

France Germany

1

France

.5

.04

.06

Italy United States

Italy -.1

.1

1.5

-.1

(mean) mfp

.08

0

Japan

United Kingdom

.2

United Kingdom

Germany

France

Germany Canada Japan

.5

France

1

United States

(mean) mfp

.06

-.2 0 (mean) pdi_net_gdp

0

.02

.04

Italy United States

.05

0

Japan

-.02

(mean) gdpus_growth

Canada

Italy -.4

.2

1.5

-.2 0 (mean) pdi_net_gdp

.08

-.4

0

Japan

-.02

(mean) gdpus_growth

Canada

United Kingdom

-.02

(mean) gdpus_growth

.08

164  Tatiana Cesaroni and Roberta De Santis

.1 .15 (mean) fdi_net_gdp

.2

.25

Italy .05

.1 .15 (mean) fdi_net_gdp

.2

.25

Figure 7.10  Net PEI, PDI and FDI versus GDP growth and versus MFP. Source: Author elaboration on External Wealth of the Nations (EWN) database (2015) http:// www.philiplane.org/EWN.html.

and 7.10, we present the graphical behaviour of each component of capital, for each of the G7 countries. These figures display the relationships between gross and net FDI, as well as PEI and PDI, in relation to MFP and GDP average growth at country level, in the 1996–2007 period. These figures show a clearly heterogeneous picture for the different countries with respect to the relationship between MFP-GDP growth and the various foreign capital components. With few exceptions, the UK, among the G7 countries, was the one with the highest financial internationalization and MFP and GDP growth rate return. Germany, France and Canada were in an intermediate position. In Italy and Japan, the capital intensity experimented seems to be scarcely associated with a high level of growth.

Growth and productivity in the G7  165 Figure 7.11 presents the relationships between gross and net FDI, alongside PEI and PDI, in relation to the average institutional quality composite indicator, in the 1996–2007 period. As for the correlation between foreign capital components and institutional quality, looking at the figure we can see, again, a fairly heterogeneous picture. The evidence is consistent with the literature, with the exception of some countries with higher levels of institutional quality, which are associated with lower PDIs and greater FDIs and PEIs, both gross and net (i.e., Canada and the UK). Figure 7.11 also highlights a different relationship, for the various v, between gross (assets plus liabilities) and net (assets minus liabilities) financial stocks, and institutional quality. This evidence suggests that further research in this direction is needed.

1.4

France

1.2

Canada

1.6

United States

United Kingdom

Germany United States

France Japan

.8

1

1

Japan

.8

Italy .6 .8 (mean) gross_pei_gdp

Canada

France

Italy

Canada

Italy

1.6

France

(mean) wgi 1 1.2

1.4

-.4

(mean) wgi 1 1.2

5

United States

.8

Japan

Italy .2

United Kingdom Germany

Japan

1.6

3 4 (mean) gross_pdi_gdp

.4 .6 .8 (mean) gross_fdi_gdp

1

.1

France

1.4

2

0 .05 (mean) pei_net_gdp

United States

Canada United Kingdom Germany

0

-.05

.8

Japan

1

-.1

1.4

United Kingdom

United States

.8

(mean) wgi 1.2 1

1.4

Germany

Italy

1

1.6

.4

(mean) wgi 1 1.2

1.6

.2

.8

(mean) wgi

United Kingdom

(mean) wgi 1.4 1.2

1.6

Canada Germany

-.2 0 (mean) pdi_net_gdp Canada Germany

.2

United Kingdom

United States France Japan

Italy .05

.1

.15 .2 (mean) fdi_net_gdp

.25

Figure 7.11  Gross and net PEI, PDI and FDI versus WGI. Source: Author elaboration on External Wealth of the Nations (EWN) database (2015) http:// www.philiplane.org/EWN.html.

166  Tatiana Cesaroni and Roberta De Santis

Conclusions The global macroeconomic outlook has been heavily hit by the global financial crisis, and today it is still characterized by low returns and certain downside risks. A more effective policy mix is needed to foster economic growth and reduce inequality. This requires not only an improvement of policy tools at the national level but also a stronger coordination of national strategies at the international level. Moreover, a broader and more effective international strategy of capital flow management is needed to orient global financial markets towards long-lasting monetary and financial stability. In this framework also G7 countries are facing political and economic uncertainties, and long-standing structural problems. While the short-term outlook, according to the latest forecasts of international organizations, can be considered reasonably positive, the longer term prospects indicate that there are significant challenges ahead. These challenges have underlying economic causes stretching back many years and are the result of low productivity growth, stagnating real incomes and living standards, rising inequality and technological change. To tackle these difficulties, especially after the global financial crisis, G7 members discussed the rebuilding of financial stability, while the G20 meetings addressed the strengthening of the regulatory system. Although the reforms of the financial architecture are considered necessary by both economists and politicians, they are not sufficient to ensure global financial stability and manage the growth of capital movements. Financial stability is also linked to external shocks that cannot be easily prevented and effectively counterbalanced. The openness of capital flows can potentially foster growth and convergence but can also easily trigger a crisis through various channels across countries. In this chapter, we provide new evidence on the relative importance of capital inflows components (FDI, PEI and PDI) with respect to the long-term growth trajectory of G7 countries. We also outlined the stylized facts on the dynamics of international capital components, productivity, growth and institutional quality in G7 economies, over the last 20 years. The preliminary results presented in this chapter might be taken as a starting point for deeper investigations. The findings point towards the importance of monitoring not only the size of foreign capitals but also their ‘institutional quality-induced allocation’ across different components, since the returns, in terms of growth and productivity, might be very different. The evidence shows that the financial globalization process has generated heterogeneous results, in terms of growth and productivity and foreign capital composition in G7 countries, and that institutional quality differences across G7 countries are still significant and have deepened after the financial crisis. Interestingly, there is evidence that, for the three foreign capital components (FDI, PEI, PDI), not only the liabilities but also the gross capital position and assets are positively correlated with MFP and growth.

Growth and productivity in the G7  167 This association suggests that the explanation for the relationship between economic performance and foreign capital composition has to go beyond financing and might be related also to the international reorganization of production. The emergence of GVCs, for example, that occurred in parallel with financial integration is essentially a product of globalization that has given firms the ability to unbundle (also through foreign capitals exchange) their production processes in different locations, in an effort to reduce production costs and increase productivity. The analysis of the correlations between foreign capital components and institutional quality at country level shows, with few exceptions and consistently with the literature, that countries with higher levels of institutional quality are associated with more productive capital investment (i.e., lower PDIs and greater FDIs and PEIs), in terms of both gross and net stocks. Thus, the fact that some G7 countries, despite receiving and investing in foreign capitals more than other countries, performed worse in terms of productivity may depend also on a different institutionally induced foreign capital composition.

Acknowledgements The views expressed in this chapter are those of the authors and do not represent the institutions with which they are affiliated. Any errors or mistakes remain the authors’ sole responsibility. Thanks are due to Gian Maria Milesi Ferretti for providing us with the updated dataset ‘External Wealth of the Nations’.

References Acemoglu, Daron, Simon Johnson, and James A Robinson. 2005. “Institutions as a fundamental cause of long-run growth.” In Handbook of Economic Growth, Vol. 1A, edited by Philippe Aghion and Steven N. Durlauf, 385–472. Elsevier B.V., North-Holland and Amsterdam. Albuquerque, Rui. 2003. “The composition of international capital flows: risk ­sharing through foreign direct investment.” Journal of International Economics 61, no. 2: 353–383. Alfaro, Laura, Şebnem Kalemli-Özcan, and Vadym Volosovych. 2014. “Sovereigns, upstream capital flows, and global imbalances.” Journal of the European Economic Association 12, no. 5: 1240–1284. Benigno, Gianluca, Nathan Converse, and Luca Fornaro. 2015. “Large capital ­i nflows, sectoral allocation, and economic performance.” Journal of International Money and Finance 55: 60–87. Broner, Fernando, Tatiana Didier, Aitor Erce, and Sergio L. Schmukler. 2013. “Gross capital flows: dynamics and crises.” Journal of Monetary Economics 60, no. 1: 113–133. Cesaroni, Tatiana and Roberta De Santis. 2016. “Current account “core periphery dualism” in the EMU.” The World Economy 39, no. 10: 1514–1538.

168  Tatiana Cesaroni and Roberta De Santis Cesaroni, Tatiana and Roberta De Santis. 2018. “Dynamics of net foreign asset components in the EMU.” International Economics forthcoming, DOI:10.1016/j. inteco.2018.04.004. Faria, André, Philip R. Lane, Paolo Mauro, and Gian Maria Milesi Ferretti. 2007. “The shifting composition of external liabilities.” Journal of the European E ­ conomic Association 5, no. 2–3: 480–490. Gopinath, Gita, Şebnem Kalemli-Özcan, Loukas Karabarbounis, and Carolina Villegas-Sanchez. 2015. “Capital allocation and productivity in South Europe.” Working Paper no. 21453. National Bureau of Economic Research. Gourinchas, Pierre-Olivier, and Olivier Jeanne. 2013. “Capital flows to developing countries: the allocation puzzle.” Review of Economic Studies 80, no. 4: 1484–1515. Gourinchas, Pierre Olivier, and Hélène Rey. 2013. “External adjustment, global imbalances and valuation effects.” Working Paper no. 19240. National Bureau of Economic Research. Kaufmann, Daniel, Aart Kraay, and Massimo Mastruzzi. 2010. “The Worldwide Governance Indicators: methodology and analytical issues.” World Bank Policy Research Working Paper no. 5430. Kiminori, Matsuyama. 2014. “Institution-induced productivity differences and ­patterns of international capital flows.” Journal of the European Economic A ­ ssociation 12, no. 1: 1–24. Lane, Philip R. and Gian Maria Milesi Ferretti. 2007. “The external wealth of ­nations mark II: revised and extended estimates of foreign assets and liabilities, 1970–2004.” Journal of International Economics 73, no. 2: 223–250. Lane, Philip R. and Gian Maria Milesi Ferretti. 2015. “The external wealth of nations mark II: revised and extended estimates of foreign assets and liabilities, 1970–2015,” mimeo. MacDonald, Margaux. 2015. “Patterns of international capital flows and ­productivity growth: New evidence.” Review of International Economics 23, no. 5: 846–872. Pellegrino, Bruno and Luigi Zingales. 2017. “Diagnosing the Italian disease.” ­Working Paper no. 23964. National Bureau of Economic Research. Prasad, Eswar S., Raghuram G. Rajan, and Arvind Subramanian. 2007. “Foreign capital and economic growth.” Brookings Papers on Economic Activity 38, no. 1: 153–230. Saccomanni, Fabrizio and Simone Romano. 2017. “Challenges for Global Macroeconomic Stability and the Role of the G7.” Proceedings of the international conference on “Major Challenges for Global Macroeconomic Stability. The Role of the G7” held in Rome, 27–28 March 2017. Istituto Affari Internazionali (IAI). Roma: Nuova Cultura. Wei, Shang-Jin. 2002. “How taxing is corruption on international investors?” ­Review of Economics and Statistics 82, no. 1: 1–11.

8 Out of the ashes? Reflecting on the future of global governance Alex Andrione-Moylan, Jan Wouters and Chiara Oldani The contributions to this volume capture the complexity of the times and reflect the diversity of issues that analysing contemporary global governance entails. Straddling more than four decades, since the establishment of the so-called Library Group in 1973 – the precursor to the G5 and G7 – it provides the reader with a sense of how deep and significant the shifts in global affairs have truly been. These range from the rising breadth and depth of globalization, to the emergence of a transnational civil society and with it, anti-globalism. They embrace an evolving populist challenge, following the financial-economic and migration crises, and the rise of contestation from both within and vis-à-vis the West. This has led to this examination of the current paradox of a world that has never been as interconnected, all while facing unprecedented conjunctural, but even more importantly, structural challenges. While this book traces the roots of the contemporary uncertainty and illustrates the threats to global governance, its narrative is equally built on continuity. This is seen in the resilience of the G7, which, despite these transformations, appears to be far from fading from the global arena. However, continuity, through change, can be considered a feature of current global affairs as a whole. This may hold the key to assessing what kind of future scenarios the world is likely to be confronted with. The picture presented here is, nevertheless, an ambivalent one. It brings together the remarkable responsiveness of the G7/8 to demands for greater inclusiveness and accountability, with the realities of a rather l­egitimacy-thin forum. Its ability to provide the basis for global collective action on key contemporary challenges, as in the case of the Paris Agreement, is coupled with a rather inconsistent track record in implementing the commitments made during the summits. Moreover, a measure of openness to redefining the G7 discourse and agenda, in order to ensure relevant and effective action, clashes with a neoliberal ideological base which is not open to debate. This unfolds even as domestic political cleavages across the West appear to be recast in support of, or opposition to, the neoliberal order. And what of the lack of convergence when it comes to ensuring sovereign debt management sustainability and institutional quality as a basis for economic growth? It would seem that in recent years, G7 commitments in the area of energy,

170  Alex Andrione-Moylan et al. health, security and even gender have not been matched with efforts aimed at ensuring greater financial stability, despite the rather dramatic consequences of the financial-economic and Eurozone sovereign debt crises and inconsistent economic growth across G7 members. Though this volume focuses on some of the key features of the G7’s origins, functioning and agency, the complexity of the landscape that emerges with regard to this particular forum has much to say about the current state and future development of global governance in general. As the chapter provides some concluding remarks and casts its gaze into the future prospects for global governance, it offers a tentative basis for further research on these matters, along with some alternative scenarios about what the future might hold. It begins by inviting the reader to take a broader perspective on how one perceives and conceives this complex phase the global order is traversing, beginning from the often-contradictory picture that emerges from this volume. The tension that arises between the significant progress on matters of substance and process shown in the evolution of the G7 is coupled with increasing demands and widening gaps, as a result of the growing complexity of the challenges faced by multilateral fora and rising expectations when it comes to issues of legitimacy. Similarly, sharp criticism and contestation directed at the European Union (EU) or the International Monetary Fund should not lead to reductive diagnoses of global collapse. These phenomena could rather be interpreted as an indication of how the globalization process is broadening and evolving at a far greater pace than its founding institutions ever envisaged and may not be necessarily incompatible with the order itself.

On the brink of collapse? These tensions between structural change (i.e., the role played by civil society, restrictive claims to democratic legitimacy and shifting political divides) and institutional responses should inform the manner in which one assesses where global governance is headed. This section briefly considers the current academic debate that attempts to make sense of this current transition phase, which often appears to place excessive emphasis on the inevitability of the decline of the West and the current global order, as they are perhaps too hastily assumed to be mutually dependent. It proposes a cool-headed assessment of the current and future trajectory of global affairs, with the aim of capturing, once again, its contradictory and multifaceted nature to caution against simplistic diagnoses. This is followed by an attempt to consider some potential scenarios of the future evolution of global governance. Some of the challenges encountered by the G7 should undoubtedly be related to the emergence of new non-Western powers, which tend to contest a global order dominated by the West. Thus, the argument goes that, as multilateral settings tend to be dominated by the West and its worldviews, then new contenders to power, such as the BRICS (Brazil, India, China,

Out of the ashes?  171 South  Africa), are likely to promote alternative settings and narratives, when dealing with global affairs (Stephen 2014). This is a result of the ‘great rebalancing’ which followed the end of the ‘unipolar moment’, in the early 2000s, and the financial-economic crisis (Krauthammer 2002; Layne 2012; Pettis 2013). The point here is not to dispute this, but rather to highlight that a reflection on current and, especially, future developments should be informed by an awareness that the Western order is proving to be rather resilient in confronting the challenges that it faces. The current international order has developed to such an extent that it does not rely on the hegemony of a single state (the U.S.) or a group of countries (the G7), but is rather ‘a wider conglomeration of ordering rules, institutions, and arrangements’ (Ikenberry 2018: 20). Many of these are, in fact, embraced by ‘the Rest’, as the benefits of predictable, rules-based relations among states and the economic advantages of being part of the global economy and the institutions that govern it, are apparent. This also allows to put into perspective concerning trends such as those surrounding the 2018 Charlevoix G7 (cp. Chapter 4, this volume): while not inconsequential, Trump’s contestation of multilateral fora may not be as momentous as one might expect, even if it may contribute to a gradual shift in global affairs. As argued most recently by G. John Ikenberry, the relative decline of the U.S. and the West in general should be considered separately from the prospects of the global order. In the context of this volume, the enduring effectiveness of the G7 also points in this direction: fora like the G7 are bound to receive criticism when they are seen as pursuing hegemonic aims, but less so when working towards the solution of global collective action problems. Thus, it seems far more likely that this process of evolution and renegotiation of the framework of international relations will continue, and sudden subversion by emerging powers is far from inevitable. Related to these arguments is the reality that many emerging countries, economically, have not fared as well as predicted and major issues remain when it comes to matters like wealth distribution (Ivins 2013; Liu 2016). Contestation, in terms of both anti-globalism from within and opposition from non-Western countries, is, in this unprecedented synergy, one of the defining features of the times. Failing to acknowledge this is to fundamentally underestimate what is at stake and the diverse responses that today’s challenges require. Still, in this regard, what can be emphasized, in light of the analyses contained in this volume, is that contestation from outside the West comes in different forms (Newman and Zala 2017). In some instances, as in the case of Russia and its 2014 annexation of Crimea, the world is confronted with a serious violation of fundamental principles of international law. However, while it is rare that states act upon their territorial ambitions, other forms of contestation are far more common: these are generally centred on values – how prescriptive or normative the global order should be – or representation concerns – the overrepresentation of Western countries in multilateral institutions.

172  Alex Andrione-Moylan et al. The current global order is under significant pressure and is more likely to alter than to remain unchanged. However, nuance with regard to the nature of this pressure is essential, as the very broad acceptance of many of its basic tenets goes a long way in explaining the continuing effectiveness, and indeed the existence, of standard bearers of that order, like the G7. A case in point, President Xi Jinping’s address at the 2017 World Economic Forum held in Davos, signalled such an attitude: Any attempt to cut off the flow of capital, goods, and people between economies, and channel the waters into the ocean back into isolated lakes and creeks is simply not possible (…) we must have the courage to keep swimming in the global market. (Elliott and Wearden 2017) He went on to assert that ‘[t]he Paris Agreement is a milestone in the history of climate governance. We must ensure this endeavour is not derailed’ (Phillips 2017). One can assume that without Donald J. Trump in the White House, there would probably have been no such overt support for global liberalism and cooperation on tackling climate change. It is quite apparent that contestation captures only one dimension of the current landscape and that any prediction of what lies ahead must take into account this ambivalence. There are others, it seems, that are prepared to pick up the baton – even if it might be for a different reason. When it comes to contestation from within the West, with the rise of antiglobalism and, more recently, of populism, as argued at the outset of this volume, there are signs of a distinctly different approach to global affairs. Alternative discourses and practices stemming from this populist turn are shaking up established features of the global order. Still, if the fate of global affairs is not dependent on a predominant West, populist challenges may somewhat damage, but not eradicate, a rules-based approach. The outcome of the elections held in Italy on 4 March 2018, in which populists on the left (Five Star Movement) and the right (Lega) attained nearly 50% of voters’ support, will probably provide an opportunity to examine how a major European government dominated by populist forces behaves. Some observers have referred to the normalization or institutionalization of the Five Star Movement, which sought to soften its stance on the EU and present itself as the governing party-in-waiting in the run-up to the elections (Migliaccio and Follain 2018). Nevertheless, just as its leader Luigi Di Maio went to great lengths to reassure European elites, Dutch Prime Minister Mark Rutte, in a speech made on 2 March 2018, noted that ‘[t]here has been this narrative that there is this inevitability of closer cooperation in a European federal state. This horrible language about “ever closer Union” I don’t like’ (Escritt 2018). It would seem that representatives of the establishment at times seek to portray themselves as ‘populists’, while populist parties are eager to assuage concerns raised by the prospect of a populist government,

Out of the ashes?  173 within the European establishment: dynamics that lead one back to how it might be more apt and, indeed, useful to consider such contestation as part and parcel of the system itself. All of these considerations point to how these dynamics are far from being easily assessed or univocally defined. As noted by Mattias Kumm, this is with all probability a ‘significantly more complex story in which elements of demise and decay are complemented by resistance, reconfiguration and innovation’ (Kumm et al. 2017: 4). This is the complexity in which the G7 is immersed, and that, with the plurality and fragmentation it engenders, allows this forum to make a key contribution to global governance, all while facing the implications of the reassessment of the global order.

What’s next? Looking ahead to the future of global governance has rarely been more perilous. Still, there are three scenarios in the future development of global governance and, within it, of the G7. Beyond how predictive they may or may not be, they are useful to focus on some of the key issues at stake and give some thought to how to reflect upon them, in light of the discussion above. How to conceive of the current transformations may well affect the likelihood of future trajectories and the tools that might be available to confront the challenges to come. G-Zero The first potential scenario is one of global collapse, bringing a greatly diminished clout of the West, and the breakdown of the multilateral global order. This is hardly a new notion. Ever since it became apparent that the unipolar phase would not last, there has been much debate over the imminent decline of the West and, with it, of the post–Second World War international order. In a hegemonic logic of global rebalancing, as the BRICS gained momentum, for many prominent scholars, it seemed inevitable that this would ultimately lead to a diminished influence of the U.S. and Europe over global affairs. As noted by Kristensen (2017), in the current debate, there is much talk of how it is ‘different this time’. That is to say, the threat is not an exogenous one generated by power politics but is rather born out of disengagement and even contestation from within the West, a diagnosis which has gained particular traction in the wake of the election of President Trump and the Brexit referendum in the UK. The start of this volume identified this latest development in global affairs as a major challenge for the multilateral order and, more particularly, for the effectiveness and unity of the G7. This is a scenario that some have defined as a G-Zero world, in which there appears to be no emerging alternative system and no state or group of states which are prepared or able to take on global leadership. From this perspective, one might foresee the U.S. pulling out of the G7, a move that

174  Alex Andrione-Moylan et al. would be in line with the current President’s anti-globalist agenda and that is not implausible in light of the highly contentious 2018 Charlevoix G7. On the other side of the Atlantic, while the populist threat has momentarily subsided, it is far from over: renewed crises could eventually weaken the EU to such an extent that it would be in no position to take over the stewardship of the global order. This is the prospect of a world in which transactional and utilitarian relations prevail and a state of disintegration of global order emerges, as the byproduct of the spread of populism. Muddling through Another potential development could be that there is no fundamental change, but simply a muddling through of sorts, in which the practical benefits of cooperation would sustain the global order, at least for a time. That is to say, the world would not be faced with the somewhat apocalyptic scenario discussed above, with the dawn of populism not proving to be particularly consequential for the conduct of international affairs. On the longer term, however, such a scenario is unlikely to be without consequences. This is particularly so if the threat from non-Western powers turns out to be more formidable than expected and/or issues of legitimacy and democratic accountability are not acknowledged within fora such as the G7. A business as usual approach and lack of reform, in the directions contributors to this volume have proposed, could bring about a gradual erosion of the multilateral order. As has been discussed throughout this volume, mounting challenges, combined with internal (i.e., Western) and external calls for increased legitimacy of the authority exercised by the G7, necessitate renewed and deeper reform, in three key domains: (1) effective involvement of civil society; (2) outreach and inclusiveness towards non-Western global actors – ­particularly by strengthening multilateralism, rather than responding to hegemonic pressures; and finally, (3) an agenda that engages with the perceived and real threats of a globalized world. Such a scenario is not inconceivable, as to achieve such change would require intensifying cooperation within the G7. However, lack of domestic support for multilateral cooperation, in the context of populist challenges, could translate into a lack of political will to intensify cooperation within multilateral fora in general. Paradoxically, this would prevent taking the kind of action necessary to address some of the root causes of this discontent, which in the long run could dramatically undermine effective action in the G7, along with global cooperation as a whole. Governance by difference? The final scenario is one that emerges from the reinterpretation of current developments and future prospects of the global order, presented at the start of this chapter. This is an approach that avoids the normative bias that placing great emphasis either on the ‘clash of civilizations’ between Western and

Out of the ashes?  175 non-Western countries or upon the societal and political cleavages within the West, both imply. The balkanization of domestic political debates and the representational and value-based global conflicts can be seen in highly oppositional terms, with cosmopolitan and anti-globalist worldviews and Western and non-Western approaches to global affairs pitted against one another irreconcilably. Doing so, however, is likely to precipitate a state of global gridlock and paralysis – of which some already see the signs – as a result of emerging unilateralist disintegration (scenario A) or enduring hegemonic pressures (scenario B). A more neutral point of departure would be to consider plurality, rather than conflict, as the defining feature of the new global arena. In a context of contestation, focusing on the multiplicity of actors that have a role to play in world affairs and the variety of views on how these should be conducted, and thus opening up the debate on these matters, is likely to be more effective in ensuring the long-term resilience of global cooperation. While it would appear that a global order founded upon the consensus among a small group of Western countries will become increasingly unsustainable, the enabling of institutionalized channels for the renegotiation or re-interpretation of certain norms and the debate among claims and counterclaims is could constitute a way forward. A candidate to open up the debate over the future of globalization, both within and beyond its borders, is the EU, the global actor least likely to pursue unilateral and hegemonic aims, and that will increasingly depend on greater legitimacy for its continued success. It is impossible to predict how far such renegotiation or re-interpretation would go and the kind of order that would ensue, which points to the specific concerns and challenges this scenario entails. As noted by Hurrell (2018), these developments would hold significant uncertainty and in many ways also run counter to basic tenets of the current international order, which many would argue should not falter in the face of contestation. Nevertheless, with an EU finally addressing contestation towards trajectories of integration and globalization from within its member states, this could also constitute a desirable evolution. It would have a knock-on effect on the role the EU plays in global fora, including the G7, which may be directed towards a more inclusive agenda and away from hegemonic pressures, particularly in the context of an increasingly unengaged attitude of the U.S. within multilateral settings. In the short term, the G7 would face relinquishing its unique status and capability to influence the global arena. On the other hand, it could also find itself being reinterpreted as one of the key settings to conduct such a renewal of the global order, potentially contributing to the resilience of global cooperation. This could, in essence, constitute a shift towards a global governance by difference, in which global connectivity is sustained; however, the rules of the game may be significantly redefined or re-interpreted and a degree of fragmentation could emerge to accommodate not only very diverse institutional settings but also norms and values.

176  Alex Andrione-Moylan et al.

Contestation revisited Was Samuel P. Huntington right after all? As one is called upon to explore these uncharted waters, something akin to the Clash of Civilizations may appear to provide an effective frame of reference (Huntington 2002; Lozada 2017). The potential for global conflict and breakdown is here. However, it is not inevitable. The landscape of global governance is constantly in flux and, crucially, highly contradictory. This is a reality the nature of which escapes both assessments and predictions of global decline of the liberal order, as well as positivist assertions of the inevitability of the West’s dominance. Hence, the reductio ad unum that narratives such as that of the Clash of Civilizations entail – specifically the irreconcilability of cultural and religious differences as the ultimate interpretative lens of global affairs – cannot hope to provide a comprehensive picture of what the world is confronted with. Even more, one should be wary of narratives that assert the inevitability of decline and global conflict. By reinforcing certain normative and cultural biases, they may even contribute to making such developments significantly more likely. What if, as globalization has provided the foundations and the space for a contestation that otherwise would not exist, one conceptualizes these various forms of conflict as endogenous to the system? The final scenario discussed above foresaw a potential shift in the frame of reference from conflict to plurality, which might be more effective in ensuring the lasting resilience of the global order. However, a research agenda that refrains from interpreting non-Western contestation as the conceptual other could yield essential insights into how the global order might engage with these challenges. The key might indeed be to focus on how the current international order, globalization and transnational interconnectedness are at the root of this evolution and have unwittingly opened to scrutiny and debate matters that have never before been called into question. In this sense, they can be conceptualized as endogenous to, rather than at odds with, that system. Research exploring the manner in which one might institutionalize such debates, without compromising some of the core principles of the current order, could make a significant contribution to mapping out the future of global governance. More particularly, future research should develop the debate over the resilience of international norms and principles, whether and how they have been internalized by non-Western countries, and the extent and nature of the nexus between a hegemonic West and a resilient liberal order. Specific attention should be given to how populism and domestic contestation affect the conduct of global affairs, in order to establish the relationship, on the one hand, between domestic and external determinants and, on the other, between rhetoric and practice. Building on the insights contained in this volume and the broader academic debate, greater efforts in exploring the future determinants of these

Out of the ashes?  177 uncertain times are necessary and more timely than ever. There is little doubt that, whether or how the global order will emerge out of the ashes, the G7 will have a role to play: what exactly this might look like is open to debate. But rather than hurtling into the unknown, there is a clear imperative to reflect on these conundrums creatively, free from traditional biases, seeking to inspire policy solutions that are equally innovative.

References Elliott, Larry, and Graeme Wearden. 2017. “Xi Jinping Signals China Will ­Champion Free Trade If Trump Builds Barriers.” The Guardian, January 18, 2017. www.theguardian.com/business/2017/jan/17/china-xi-jinping-china-free-tradetrump-globalisation-wef-davos. Escritt, Thomas. 2018. “Dutch PM Rejects ‘romance’ of Ever Closer European Union.” Reuters, March 2, 2018. www.reuters.com/article/us-europe-netherlands/ dutch-pm-backs-smaller-eu-budget-post-brexit-idUSKCN1GE21U. Huntington, Samuel P. 2002. The Clash of Civilizations: And the Remaking of World Order. Reissue edition. London: Simon & Schuster UK. Hurrell, A. J. 2018. “Beyond the BRICS: Power, Pluralism, and the Future of Global Order.” Ethics and International Affairs. https://ora.ox.ac.uk/objects/ uuid:e09501c7-f7d0-4ba0-ad23-f724d0d6714e. Ikenberry, G. John. 2018. “Why the Liberal World Order Will Survive.” Ethics & International Affairs 32 (1): 17–29. DOI:10.1017/S0892679418000072. Ivins, Courtney. 2013. “Inequality Matters: BRICS Inequalities Fact Sheet.” Oxfam Policy and Practice: Climate Change and Resilience 9 (1): 39–50. Krauthammer, Charles. 2002. “The Unipolar Moment Revisited.” The National Interest, 70: 5–18. Kristensen, Peter Marcus. 2017. “After Abdication: America Debates the Future of Global Leadership.” Chinese Political Science Review 2 (4): 550–66. DOI:10.1007/ s41111-017-0078-7. Kumm, Mattias, Jonathan Havercroft, Jeffrey Dunoff, and Antje Wiener. 2017. “Editorial: The End of ‘the West’ and the Future of Global Constitutionalism.” Global Constitutionalism; Cambridge 6 (1): 1–11. DOI:10.1017/S2045381717000077. Layne, Christopher. 2012. “This Time It’s Real: The End of Unipolarity and the Pax Americana.” International Studies Quarterly 56 (1): 203–13. DOI:10.1111/ j.1468-2478.2011.00704.x. Liu, Ming. 2016. “BRICS Development: A Long Way to a Powerful Economic Club and New International Organization.” The Pacific Review 29 (3): 443–53. DOI:10. 1080/09512748.2016.1154688. Lozada, Carlos. 2017. “Samuel Huntington, a Prophet for the Trump Era.” Washington Post, July 18, 2017, sec. Book Party Review Review A professional critic’s assessment of a service, product, performance, or artistic or literary work. www.washington post.com /news/book-party/wp/2017/07/18/samuel-huntington-a-prophetfor-the-trump-era/. Migliaccio, Alessandro, and John Follain. 2018. “Italy’s Populist Winner Courted Investors Without Losing His Base.” Bloomberg.Com, February 28, 2018. www. bloomberg.com/news/articles/2018-02-28/this-populist-wears-a-suit-and-tieand-may-win-italy-s-vote.

178  Alex Andrione-Moylan et al. Newman, Edward, and Benjamin Zala. 2017. “Rising Powers and Order Contestation: Disaggregating the Normative from the Representational.” Third World Quarterly 39 (5): 871–88. DOI:10.1080/01436597.2017.1392085. Pettis, Michael. 2013. The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy. Princeton: Princeton University Press. Phillips, Tom. 2017. “China’s Xi Jinping Says Paris Climate Deal Must Not Be Allowed to Fail.” The Guardian, January 19, 2017. www.theguardian.com/world/2017/ jan/19/chinas-xi-jinping-says-world-must-implement-paris-climate-deal. Stephen, Matthew D. 2014. “Rising Powers, Global Capitalism and Liberal Global Governance: A Historical Materialist Account of the BRICs Challenge.” European Journal of International Relations 20 (4): 912–38. DOI:10.1177/1354066114523655.

Index

Accountability 3, 5, 8, 12, 35, 91–93, 109, 111, 114, 116, 117, 119–122, 125, 157, 169, 174 Anti-globalization, Anti-globalism 2, 8–10, 11, 13, 17–18, 24–26, 31–33, 35, 37–40, 42, 45, 62–63, 70, 76–77, 84–85, 92–93, 137, 144–45, 169, 171 Canada 2, 5–7, 16, 22, 25–26, 29–33, 37–41, 69, 78, 80, 82–83, 91–93, 99–100, 105–06, 108, 117, 121, 18, 130–33, 151–52, 154, 158–59, 163–65 Capital Inflows 149, 166 Centralized Counterparty 128 Charlevoix (G7 summit) 1, 6, 9, 14, 16, 25, 40–41, 78, 80–82, 92, 172, 174 Civil society 5–7, 9, 10–13, 18, 33, 42, 47, 51, 55, 58, 111, 122, 169, 170 Civilizationism 13, 46, 48, 50, 52, 59 Clean Energy 40, 96, 97 Climate Change 1, 6, 9, 10, 16, 22–23, 25–26, 30, 33, 38–42, 44, 54, 83, 90–123, 172 Commitment 5–6, 8–10, 16–18, 23, 27–29, 34, 39, 42–43, 71–72, 75, 90–94, 96, 98–102, 105–06, 108–12, 114, 116–22 Compliance 3, 5, 9, 18, 27–29, 42, 75, 90–93, 105–106, 109, 111–22, 138 Compliance Catalysts 109, 112 Cosmopolitanism 13, 46, 48, 50, 52–55 Credit Default Swap 138, 141–44 Creditor 132–33 Current Account 17, 148 Debt Management 136, 142, 145, 169 Debt Stabilization 137 Derivative 18, 127–147

Deficit 10, 47, 82, 129, 134, 137 Disintegration (of global affairs) 15, 174, 175 Economic nationalism 2, 15 Effectiveness 2, 3, 5, 8, 12, 16–18, 47, 75, 82, 90 (ff), 130, 135, 157, 159, 171–173 Environment 3, 6–7, 14, 16, 32, 39, 41, 46–47, 51, 54, 58, 71, 77, 83–84, 91–96, 102, 104–05, 119–22, 127, 148, 153 Environmental Agreement 93 European Debt 139 Eurozone 74, 79, 154, 170 Financial Crisis 1, 4, 13, 18, 23–24, 31–33, 45–46, 62, 105, 128–30, 134, 144, 148–49, 151, 154, 157–58, 166 Financial Stability 17, 18, 123, 128, 134, 135, 137, 145, 148, 150, 166, 170 Financial Stability Board 128 Fiscal Space Variable 140–42, 145 Fragmentation 2, 8, 9, 137, 173, 175 France 2, 7, 11, 13, 24–26, 30, 33, 38, 41, 69, 72, 74, 77, 78, 90, 93, 99, 105–06, 108, 117, 121, 130, 141–45, 150–52, 154, 158–59, 163–65 Fundamental 14, 45–46, 51–53, 56, 61, 81, 83, 127–147, 162, 171, 174 G7 Ministerial 40, 81, 91 Germany 2, 7, 13, 26, 30, 33–34, 37–38, 64, 69, 72, 77, 80, 98, 99, 105–06, 108, 117, 128, 130–142, 145, 150–52, 154, 158–59, 163–75 Global Governance 1–2, 4–6, 8–12, 14–15, 17–18, 25, 27–29, 40, 49, 51, 52, 54, 57, 69–72, 92, 169–76 Global Warming 104–05

180 Index Globalization 1, 8, 10–13, 18, 21–26, 30–35, 37–40, 42, 45–47, 49–63, 68, 70, 76–77, 81–85, 92, 100, 130, 137, 144–45, 148, 150, 152, 166–67, 169–70, 175–76 Greenhouse Gas 99–101, 105, 122 Gross Capital 160, 166 Gross Public Debt 128, 131 International Monetary Fund 2, 4, 6, 11, 32, 35, 41, 70, 76, 91, 127, 145 Institutional Quality 17, 148, 149, 150, 156–167, 169 Italy 1, 3–5, 7, 14, 22, 25–26, 29–30, 33, 38–39, 64, 69, 72, 76–78, 80–81, 83, 86, 105–06, 108, 117, 123, 127–28, 130–37, 139–45 Japan 2–3, 22, 25–26, 29, 30, 33–34, 37–38, 69, 72, 77, 83, 100, 105–06, 117, 119, 127–28, 130–33, 137, 151, 154, 158, 159–65 Kyoto 6, 10, 54, 96–98, 102–03, 110, 145 Legitimacy 8–18, 47–48, 52, 56, 75, 78, 84, 132, 170, 174–175 Liberal order 8, 23, 79, 169, 176 Localism 13, 46, 48–50, 52, 55–58 Nationalism 2, 4, 15, 49, 53, 58, 68, 70, 76–77, 85 Neoliberalism 1, 10, 13, 46, 49–52, 58 Net Public Debt 131–32, 138 Non-state actor 47, 49 North Atlantic Treaty Organisation 16, 23 Oil Shock 26, 30, 35, 94–95 Over The Counter (OTC) 17–18, 127–128, 132–38, 142, 144–46 Paris Agreement 7, 10, 22–23, 39, 41, 81, 100–01, 103, 119, 169, 172

Policy Mix 18, 150, 166 Populism 1, 10, 12, 17–18, 22–25, 38, 49, 68, 70, 76–77, 84–85, 129, 137, 148, 172, 174, 176 Productivity 15, 17, 56, 129–131, 148, 152, 162 Public Debt 17–18, 127–145 Public Debt Restructuring Program 131 Russia 2, 4–5, 11, 13, 16, 18, 23–24, 29, 32–34, 37, 41–42, 61, 69, 74, 77–79, 80, 82, 84, 96, 105, 108, 117, 119, 171 Sustainable Development Goal (SDG) 25, 100, 118, 122 St. Petersburg 33, 36, 98 Taormina (G7 summit) 1, 6, 13–16, 22–23, 25, 36, 38–40, 77, 80–81, 92, 100–01, 123, 127, 144 Trump, Donald 1, 7, 14, 15, 16, 18, 22, 23, 25, 33, 38–39, 40, 42, 46, 62, 77, 78, 80–81,84, 92, 100, 101, 171–173 United Nations 4, 18, 22, 35, 41, 52, 54, 55, 58, 62, 92, 96, 118, 121 UK 14, 17, 22, 25–26, 30, 33–34, 38, 40, 42, 62, 69, 72, 74, 77, 79–80, 82–84, 96, 98, 100, 105, 117, 129, 131, 133, 151–52, 154, 158–60, 164, 173 UNFCCC 90, 94–95, 97, 99, 102, 104–05, 109, 119 U.S. 2, 4–5, 8–16, 22–26, 30–33, 35, 37–42, 91–92, 94–95, 99, 101, 105, 117, 127–29, 131, 133, 137 World Bank 4, 6, 11, 32, 35, 41, 51, 58, 76, 91, 157, 159 World Trade Organisation 4, 11, 16, 22–24, 31–33, 35, 39, 70, 80