New economic order makes Ireland's place in EU vital

Mon, Sep 28, 2009, 01:00

The only way the State can ensure its voice is heard, and its concerns addressed in the G20, is through a functioning EU, writes TONY KINSELLA

MICHEÁL Mac LIAMMÓIR once observed that “nations are like people in slow motion”. Applying that metaphor to groups of nations suggest almost imperceptible progress.

Internally-driven change and reform is often so incremental that it becomes almost invisible. Change driven by external crises is usually more dramatic, and more obvious – as in the current transformation of global power. The contrast between the speed of the transformation and the longevity of the previous system is truly stark.

Our now-defunct former global system began on May 25th, 1420, and ended on October 17th, 1973. These 5½ centuries opened with the appointment of Portugal’s Prince Henry (the Navigator) to handle his country’s exploration programme. They closed with the decision of Opec ministers to raise oil prices, reduce production and introduce embargoes.

Henry’s Portugal developed a new vessel, the caravel, based on an Arab design and funded a generation of explorers which would “discover” much of the non-European world. The most famous of these, the Genoan Christopher Columbus, making his historic landfall somewhere in the Bahamas on October 12th, 1492.

This laid the basis for a Euro-centric, predominantly white and Christian world order of European states. Their migrants founded places such as the USA and Canada.

The 1973 Opec decisions quadrupled oil prices from $3 to $12 a barrel in less than a year, rocked the world’s financial systems, highlighted how unsustainable our energy-squandering economies had become and signalled the end of the old world order.

Not all of this was immediately obvious and little of it was welcomed. One of the old order’s responses was to “circle the wagons”. In 1975 president Giscard d’Estaing of France invited leaders of the world’s major economies to an informal summit meeting in Rambouillet. This summit launched an annual event which would become known as the G7.

Japan’s economic clout as the world’s second largest economy ensured its participation. The other six members – Canada, France, Germany, Italy, the UK and the USA – were the direct descendants of the power system Prince Henry had launched in 1420.

Russia’s participation from 1997 onwards transformed it into the G8 but did nothing to alter the underlying assumption that this group not only could, but somehow should, set our planet’s economic agenda.

The G7 only partially reflected global economic realities at its inception. As the years passed it became totally out of synch with such realities. History tells us that reality always, if sometimes slowly, trumps custom and practice.

On the eve of our millennium in December 1999, almost unnoticed, a reality-reflecting structure emerged with the founding G20 at a meeting of finance ministers in Berlin. The relative anonymity of that event stands in sharp contrast with the glare of attention focused on the G20 summit in Pittsburgh last week.

Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, and Turkey have joined the G8 to create what has now become the primary economic policy body on our planet. Spain and the Netherlands have so far managed to have themselves invited.

The picture is completed by the inclusion of the United Nations, the World Bank, the International Monetary Fund, the World Trade Organisation, the European Union, Association of Southeast Asian Nations and Africa’s New Partnership for Africa’s Development.

In all, G20 members represent about 90 per cent of global GDP, 80 per cent of world trade, and about two-thirds of the planet’s population.

G20 agreements from late 2008, and this spring, played a key role in saving the global financial system from meltdown. One of the early agreements at Pittsburgh last week was on the need to maintain stimulus packages. The economic patient may be out of intensive care but remains a long way from being cured.

Broad agreement was reached on several crucial points. Some are relatively technical, others significantly alter the basis of how our world works. On the technical side there is an agreement on controlling financial institutions and regulating the pay and bonuses of their employees.

Voting powers in bodies such as the International Monetary Fund and World Bank will be adjusted to reflect this new global reality with countries such as Brazil, China and India having a greater say.

More profound agreements include an acceptance by states of a need to globally balance their economic policies. States with extensive domestic savings and a high dependence on exports such as China, Japan and Germany have agreed to boost domestic consumption. Those like the UK and the US with high trade and fiscal deficits have undertaken to increase savings and reduce deficits.

All agreed to submit their economic policies to a system of peer review. This means that, for example, US trade and fiscal policies will be reviewed, even criticised, by Brazil’s ministry of finance.

While it is more than probable that the language of these reviews and any subsequent debates will be diplomatic and largely confidential, their very existence represents a dramatic political shift.

The agreement that key national policies will be processed through the lenses of their impacts on others is a ringing, even surprising, acknowledgement of the need for all to pool national sovereignties to address common challenges.

President Barack Obama was laudatory. “We have achieved a level of tangible, global economic co-operation that we’ve never seen before.” A more surprising endorsement came from George W Bush’s former deputy treasury secretary Robert Kimmitt who described the summit’s agreements as “more than symbolic . . . significant”.

The only route for Ireland’s voice to be heard in the G20 is through a functioning EU.

In a world where Beijing and Washington have agreed to pool elements of sovereignty we would do well to remember that next Friday.