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The Role of G8 Economic Summits in Global Monetary Architecture

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The Role of G8 Economic Summits in Global Monetary Architecture 5 Editor’s Note: CE JISS In readying the content of Volume 1 Issue 2 of CEJISS, I was struck by the growing support this journal has received within many scholarly and profes- sional quarters. Building on the success of the rst issue, CEJISS has man- agedThe to extend Role its readership of G8 to the Economicuniversities and institutions Summits of a number of countries both in the EU and internationally. It is truly a pleasure to watch this projectin take Global on a life of its Monetaryown and provide its readersArchitecture with cutting-edge analy- sis of current political affairs. I would like to take this opportunity to thank our readers for their constructiveKonstantinos criticism, comments J. Hazakis and continued1 support. Much has changed in the 6 months since CEJISS was rst launched. I would like to introduce this issue with a brief commentary regarding the tense atmos- phereIntroduction currently clouding Israeli-Syrian relations. There is growing concern of clandestine, actual or potential WMD procurement in the greater Middle Eastern The 1970s saw turbulent and dramatic economic transitions. The breakdown region, which has (rightly) attracted the attention of scholars and policy makers. of the Bretton Woods System introduced new monetary conditions that ended a periodOn 6 ofSeptember consensus 2007, among it wasmost reported capitalist that states Israeli regarding air force ideal jets regimes violated to Syrianform their airspace, monetary and relations.after being Until engaged 1971, by the Syrian interests anti-aircraft of financial batteries capital were were forcedembedded back in to domestic more friendly and global skies. monetary Since the regimes initial reportsin what wereRuggie made termed public, the it“compromise has become ofclear embedded that Israel’s liberalism” actions were(1982). not After accidental the first but oilrather crisis part (1974), of a deliberateindustrial states strategy faced to dealsevere with obstacles potential to Syrianaccommodate nuclear macroeconomic weapons (or materials) shocks, acquisition,as well as to purportedlyaddress persistent from Northstructural Korea. problems, Two important substantial issues current have account been raised:disequilibria rstly, and the stagflation.continued dangers Realizing of WMDthe complex, proliferation and highly in the volatile Middle nature East and,of the possible post Bretton-Woods ways of countering Monetary such environment, proliferation. six of the most industrial- izedWhile nations, Israel’s decided nuclear to introduce programmes a new have informal been andthe subjectconfidential of much instrument debate –for especially International as Israel Economic refuses Policy to allow Coordination IAEA inspectors (IEPC), to assessthe Annual its nuclear Economic sites andSummits capabilities of the Group– the fact of Sixremains Countries. that Israel is a (largely) responsible state in whichThe there purpose are manyof this checks article and is to balances survey the to preventnorms and the principles deployment that of the WMD G7/ inG8 a System wanton has manner. developed, Unfortunately, since its inception in most otherin Rambouillet Middle Eastern (1975) states in the sucharea checksof monetary and balances relations are. Indeed, absent. G7/G8This compounds states have the gone problem through of WMDa succession devel- opmentof phases as over regimes the pastwhich thirty control years, internal characterized and external largely security by the policy dominance without of signiKeynesian cant oversightor neoliberal are likelythinking to andutilise subsequent WMD (particularly strategies. nuclearTo this end,weapons) three asquestions a strategically are thoroughly deployable examined. weapon Theseinstead are: of adopting (as most other nuclear states have) a strategic view of WMD as residual; not a security mantle-piece. a) What accounts for the change in policy content in G7/G8 Summit cycles? If the accusations levelled against Syria – regarding its acquisition of nuclear weaponsb) What (or conceptionsmaterial) from of causalityNorth Korea prevail – are in IEPCaccurate, of G7/G8 then it mechanisms? con rms the worstc) fearsWhat of is Israelithe performance (and international) of G7/G8 security states inanalysts: monetary that issues? despite intense international pressures and investigations which attempt to dissuade WMD de- velopmentThis research and smuggling, aims to demonstratesuch weapons the may continuing be acquired interplay with relative between ease. eco- nomicIsrael’s ideas military (constructivism), reaction to economic the Syria andacquisition political was interests a necessary (liberalism), and even and encouraging response. It demonstrated a willingness to unilaterally respond to a nuclear provocation with maturity. It targeted non-civilian sites and focused 1 its Konstantinosattention only Hazakis on theis Assistant source Professorof danger. at theThe Department deployment of International of special Economic ground Relations and Development at the Democritus University of Thrace. He may be contacted at: [email protected]. which directed Israeli warplanes to their target was dangerous though 168 | Konstantinos J. Hazakis power considerations (realism), in G7/G8 policy-making. The main argument advanced here maintains that policy shifts between cycles cannot be reduced to material considerations but should incorporate intersubjective changes, systemic institutional variables and societal interests. To that end, this work is subdivided into three sections. The first specifies the rationale of G7/G8 monetary cooperation in each of the ‘Summit Cycles.’ The second part evalu- ates the effectiveness of G7/G8 monetary cooperation since 1975. Finally, the conclusion of this work discusses some acute challenges G8 Summits will likely face in monetary issue-areas in the future. The Evolution of G7/G8 Monetary Cooperation: Priorities and Progress from Rambouillet to Heilingendamm Understanding the basic premises of the G7/G8 IEPC framework, analysis must be centred on summit commitments on monetary cooperation, through more static classifications (ie quantitative commitments and narrative commit- ments), as well as through an examination of their evolution between 1975 and 2007. Instead of restricting G7/G8 assessments to one, or a few, commitments, this research incorporates – in a unified framework – an inventory of state- ments, many of which are not easily amenable to quantitative evaluation due to the complexities of the international financial system. G7/G8 summits have exhibited significant variance in the degree of consen- sus built around monetary cooperation since the first summit in Rambouillet (1975). However, for analytical purposes, a sub-division of IEPC into five cycles will assist in providing insights into how the G7/G8 summits operate. These cycles are: a) Cycle 1: Rambouillet (1975) to Bonn – 1 (1978) b) Cycle 2: Tokyo (1979) to London (1984) c) Cycle 3: Bonn – 2 (1985) to Paris (1989) d) Cycle 4: Houston (1990) to Naples (1994) e) Cycle 5: Halifax (1995) to Heilingendamm (2007) The First Cycle The first cycle ran for four years, (1975-1978), and was characterized by Keynesian macroeconomic thought, culminating in the well-known Bohn sum- mit, and the implementation of the “locomotive theory for economic growth”. Despite the reliance on ideological overlap among the Heads of G7 states, it took three Summits to reach an agreement on how to address the negative spillovers of the first oil crisis, and the asymmetric economic shock, caused by the collapse of the Fixed Exchange Rates System. The Role of G8 Monetary Summits | 169 The Rambouillet and Puerto Rico Summits (1975 and 1976) saw states facing fierce domestic pressure over the need of counter stagflation. The sub- sequent London Summit (1977), made a crucial contribution to developing a two-pronged coordinated strategy for dealing with stagflation. First, it prepared the ground for the Bohn Summit agreement, mentioning that “... on our discus- sions we have reached Substantial agreement. Our firm purpose is now to put that agreement into action. We shall review progress on all the measures we have discussed... in order to maintain the momentum of recovery” (Declaration of London, 1977: par. 9). Second, it identified two prevalent policy approaches favoured by G7 members. According to the Appendix of the London Declara- tion, some countries have adopted reasonably expansionist growth targets for 1977, and other states pursued stabilization policies designed to construct a basis for sustained growth without increasing inflation. However, the G7 did not view the two policy approaches as contradictory, but rather as reinforcing since the former could assist in constructing an environ- ment conducive to expansion among the latter without inflationary pressures. Thus, negative economic experiences, strong domestic political pressures and the inability to absorb the negative repercussions of global economic instability focused domestic economic strategies towards deeper and more meaningful cooperation as viewed in the subsequent (Bohn-I, 1978) Summit. Indeed, lead- ers of the G7 agreed to implement a collective ‘stimulation strategy’, assigning specific responsibilities and aims to member. The major problems of IEPC during the first cycle of Summits were strate- gic uncertainty, and durability of collective targets’ implementation. Moreover, the second oil crisis (1979) questioned Keynesian views of the Bohn Agreement and the emerging framework
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