The G20 was established as a forum in 1999. And at the height of
the international economic crisis of three years ago, in a sign of
how the global balance of power had shifted, it eclipsed the G7 of
wealthy nations as the most important meeting of world leaders. No
longer could emerging powers such as Brazil, India and China be
credibly excluded from the top decision-making table.
This year's meeting takes place at a time of emergency too. This
summit's host, the French President, Nicolas Sarkozy, had intended
the meeting to set the international seal on the rescue package
agreed last week by eurozone leaders in Brussels. He had also hoped
to use the occasion to persuade the Chinese and Japanese G20
delegations to invest in the Eurozone bailout fund. There had also
been talk of encouraging Russia, Brazil and India to
contribute.
But Monday's surprise announcement by the Greek Prime Minister,
George Papandreou, that Greece will hold a national referendum on
the Brussels bailout package in January has exploded a grenade
under all those careful plans.
If the Greek public were to reject the bailout package, it could
potentially lead to Greece defaulting on its €350 billion of debt.
This would blow huge holes in the balance sheets of European
financial institutions which have lent to Greece. American banks
could also be plunged into crisis too, thanks to the credit
insurance they are believed to have written on Greek debt. And
under such circumstances Asian sovereign wealth funds would, of
course, be most unlikely to put up any money to support Europe.
Mr Sarkozy and the German Chancellor, Angela Merkel, summoned Mr
Papandreou to Cannes yesterday, in advance of today's summit, to
find out why the Greek Prime Minister called the referendum and why
he did not warn them in advance of his intentions. Discussions
between the French and German leaders over what to do with Greece
will continue, informally, over the next two days.
Some German politicians were calling for the €8bn installment in
bailout funds, due to be delivered to Greece this month, to be
withheld until after the vote. Then there were the calls in France
for the Greek referendum to be brought forward to December. Finally
there are the groups who want the Greek people to be asked, simply,
whether they want to remain in the single currency, rather than
whether they approve of the bailout terms. Last night, after
discussions with Ms Merkel and Mr Sarkozy, it seemed that all these
groups had got their way.
They have already ruled out altering the terms of the existing
bailout deal in order to help the Greek Prime Minister win the
referendum. The pair will keep a sharp eye on the results of the
confidence vote in the Greek parliament on Mr Papandreou's
government due to take place on Friday night.
The Italian Prime Minister, Silvio Berlusconi, is also likely to
come under pressure at the meeting to push ahead with economic
reform in the light of the alarming increase in the interest rate
on Italian debt registered this week after the Greek referendum
shock. An uncontrolled Greek default would be a disaster. But a
default by Italy on its €1.8 trillion of outstanding loans would
almost certainly break the single currency apart.
The G20 already had a crowded agenda before this fresh crisis
broke out. There are due to be talks in Cannes on subjects ranging
from agriculture, to trade, to climate change, to job creation and
corruption. The Microsoft founder, Bill Gates, will present his
evaluation of a global Financial Transaction Tax – designed to fund
development projects in poor nations – to the assembled global
leaders.
Ms Sarkozy, Ms Merkel and Mr Berlusconi have pushed for such a
levy. But our own Prime Minister, David Cameron, backed by the US,
Canada and Australia, has resisted, making a stalemate likely. Mr
Cameron will also present a paper on the future of global
governance which will look at how the G20 could be put on a more
organised footing.
Those set-piece discussions will go ahead. But the flames of the
eurozone crisis, raging right outside the conference room door,
will make it difficult for most of the leaders present to
concentrate on anything else.
Stars of the show... and what they want
Barack Obama (USA)
Bankability The leading man of global finance.
Despite debt levels of 100 per cent of GDP (and rising), a $1.4trn
annual deficit and a dysfunctional political system, US Treasury
bonds are still considered one of the safest assets in the
world.
Forthcoming releases Presidential elections will
take place in November 2012. The impact on the US of a return to
recession in the eurozone could make it harder for the President to
secure a second term.
George Papandreou (Greece)
Bankability Are you joking? Greece has public debt
equal to 160 per cent of its annual GDP. And that GDP is set to
shrink for the fourth straight year in 2012. Even after 50 per cent
forgiveness of its debts (agreed in Brussels last week), Greece's
debt to GDP ratio would still be 120 per cent of GDP by 2020.
Forthcoming releases Papandreou faces a confidence
vote in the Athens parliament on Friday. If he wins, he will hold a
referendum.
Angela Merkel (Germany)
Bankability Leading lady. German debt – at 82 per
cent of GDP – is considered the safest in Europe by investors. And
German manufacturers are among the most competitive in the world,
which is one of the reasons why Germany runs a persistent trade
surplus.
Forthcoming releases Political future hangs by a
thread. Her party has slumped in the polls. And many in her
coalition are unhappy about bailout cheques for stricken
nations.
Nicolas Sarkozy (France)
Bankability On the skids. France's debt-to-GDP
ratio is a moderate 82 per cent, but critics fear that French
guarantees for eurozone neighbours could overstretch its finances.
Its banks are also highly exposed to southern European sovereign
debt.
Forthcoming releases The French President, Nicolas
Sarkozy, faces election in April 2012. His approval ratings have
crept up after the birth of his daughter and the successful
French-led Libyan intervention.
David Cameron (UK)
Bankability An unlikely stalwart of the debt
markets. Despite a double-digit deficit, British debt is liked by
investors. The fact that the UK is not in the single currency and
can thus devalue it is regarded as a strength.
Forthcoming releases No national elections are due
to be held until 2015. But Cameron has pinned his economic
credibility on an aggressive deficit-reduction strategy, which
risks being blown apart by the crisis among our European trading
partners.
Hu Jintao (China)
Bankability The rising star of the East. Beijing
has modest public debt and, more importantly, is sitting on about
$3 trillion in foreign-exchange reserves.
Forthcoming releases The President will step down
next year. But the Communist Party will remain in charge and it is
determined not to be taken for a ride by the Europeans. The party
is unlikely to part with any cash without prizes in the shape of
ownership of European companies.
Cannes in numbers
8,500 Number of delegates and members of the media
expected to attend the G20 meeting.
80 Percentage of the world's trade represented by
G20 nations. G20 member states also represent more than two thirds
of the world's population.
5 Number of additional nations invited to join the
G20 members at the meeting. These are: Equatorial Guinea, Spain,
Singapore, Ethiopia and United Arab Emirates.
12,000 Number of police and security officers
deployed in Cannes area.
5-15,000 Number of people expected to protest in
Cannes during the event.
12 Security precautions dictate that anyone above
the age of 12 must wear identity badges to move around the
city.
35,000 Estimated number of nights booked in Cannes
hotels by the attendees at the four-day event.
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