The UK has begun its 2021 presidency of the G7, the Western club that at first sight appears ill-suited to tackling the global health and economic emergency from the coronavirus pandemic, but in fact has often been at its best in a crisis.
The agenda at Friday’s session included coordinating fiscal stimulus, tackling climate change, and digital economy taxation, with finance ministers including new US Treasury Secretary Janet Yellen meeting for the first time in the post-Trump era. London said the talks began providing “global solutions” after the hammer blow dealt by the pandemic.
This was only the first major meeting this year that will address these issues. In Cornwall in June, Prime Minister Boris Johnson will host the first in-person summit in nearly two years, which leaders from Australia, South Korea and India will also attend.
For Friday’s coordination of fiscal stimulus by the US, UK, Japan, France, Germany, Italy and Canada, finance ministers were joined by the heads of national central banks and the European Central Bank. This stimulus includes the Biden administration’s proposed $1.9 trillion spending and tax cut package, and Yellen urged other G7 nations to “go big” with their own spending too.
Tax was also on the agenda, as the UK seeks to breathe new life into efforts to solve the problem of how best to tax big digital companies, many of them American. Nearly 140 countries are negotiating the first update in a generation to the rules for taxing cross-border commerce, to account for the emergence of Amazon, Google, Apple, and Facebook.
The position of the Biden administration is being widely watched after Trump effectively blocked any deal. The new US team is perceived as being more open to agreement, and London believes one may be within reach this year. The UK has also put climate change and biodiversity as a top G7 priority ahead of November’s COP 26 conference, which it will also host.
While there will be international skeptics of the G7 producing any meaningful outcomes on these topics, it has previously been at its best in crises. The very fact that it was founded in 1975 in the aftermath of geopolitical and economic shocks when Washington pulled out of the Gold Standard underlines that it was designed for turbulent times.
The G7 can now take an important step back and try to concentrate again on unity and the big strategic questions facing the West, and there is no bigger short-term challenge than the pandemic.
Back then, Richard Nixon had recently resigned as US president and there was a clear danger of currency wars. The G7 proved fit for purpose, playing a key role in the management of the most important exchange rates. It also brought Japan into the Western policymaking community, and we need a similar far-sighted approach today.
So the G7 has a record of stepping up to the plate when needed and it can play a significant role in coordinating the international response to the pandemic too. This is especially so as it is so well represented by European and North American states that have been hardest hit by the crisis.
Friday’s session was also noteworthy as, drawing a line under the Trump years, the seven nations put aside recent divisions, mainly (but not exclusively) between Trump and the other six. This reached its nadir in 2018 at the Canadian summit, with an unprecedented failure to agree on a final communique.
Personal animosity between Trump and other leaders provided political atmospherics for wider policy splits. Trump, for instance, called on the first day of the summit for Russia to be allowed to rejoin the group (as the G8), as was the case from 1997 to 2013.
Other G7 leaders dismissed this and instead called for a “rapid and unified” response to malign international interference, including by Moscow, such as cyber and chemical weapon attacks such as those in 2017 in England. Despite Trump’s desire for warmer ties with Vladimir Putin, there is little sign that Russia will be invited back to the club any time soon after being told it can rejoin only if “it changes course and an environment is once again created in which it is possible for the G8 to hold reasonable discussions.”
The G7 can now take an important step back and try to concentrate again on unity and the big strategic questions facing the West, and there is no bigger short-term challenge than the pandemic. If it can do this, the body will be more relevant again, which will help neutralize the argument by some developing countries that it lacks the legitimacy of the UN, or even the G20, and is an anachronism given the rise of new powers, especially China.