G20 Italy 2021
Chiara Oldani describes the challenges of the 2021 Italian presidency of the G20 following the pandemic year.
The year 2021 started under very bright auspices, especially for global cooperation and economic development. After a few sad years of inconclusive meetings and sterile trade wars, the G20 is gaining strength in its global policy coordination action. The 2021 Agenda of the Italian G20 Presidency is structured around three transversal policy pillars: People, Planet and Prosperity. They drive the diplomatic efforts to deliver agreements on substantial global policy themes: the introduction of a fair business tax, the management of excessive debts and digital regulation.
Global growth must maintain the balance between people and the planet, whilst seizing the opportunities provided by new technologies and remaining alive to the risks of digital development. Global growth cannot be an end in itself but must become a tool for improving people's quality of life, through measures aimed at developing skills and social inclusion. The international community should strive to make digitization an opportunity for all. Countries must agree on a shared commitment to build a strong, balanced, inclusive and sustainable recovery process from the pandemic that can help bridge widening income inequality and gender gaps in societies.
The COVID-19 pandemic and necessary restrictive measures have affected people’s lifestyles and consumption patterns. This includes the development and extensive use of digital technologies in many production sectors, unfortunately at different speeds. For example, in production sectors dominated by small and medium-sized enterprises there seems to be slower at uptake of new technologies as many firms are unable to afford the huge investments in tight deadlines.
G20 2021: the role of global policy making
Differently from the host’s of last year’s G20, Italian diplomates are working hard to pursue a global shared approach, smoothing the edges with economic diplomacy among 19 countries (Argentina, Australia, Brazil, Canada, China, France, Germany, Japan, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom and United States) and the European Union. To this end, ministerial technical meetings will be used to build the road for the Prime Ministers’ meeting of October 30-31 in Rome.
G20 Finance Ministers and Central Bank Governors have already met virtually on 7 April and had a fruitful exchange that led to agreements on a series of commitments. The Official Communiqué of Finance Ministers, a dense document of 8 pages, is full of programmatic commitments: from the fight against the economic and social damages caused by the COVID-19 pandemic, to climate change, to a digital tax, and the cancellation of $200 billion of debt of poor countries. Yet, the pandemic crisis has also increased economic risks, with increasing social spending, collapsing consumption, tax and corporate revenues all fueling a robust growth in public debt. The growth of debt carries substantial financial risks in the near future, as confirmed by the analysis of the International Monetary Fund.
It is unlikely that all the listed programmatic commitments will effectively be completed in one year, but most analysts agree that the July 2021 meeting of Finance Ministers in Venice will deliver substantial results on tax and debt. For example. it is very likely that the OECD's proposal for a global business taxation scheme (BEPS) will be addressed more concretely. The loss of tax revenue due to base erosion and profit shifting is estimated at €240 billion, and governments need fresh resources to finance the recovery process from the pandemic crisis.
A common scheme of action is needed to make the global financial markets more integrated, liquid and, above all, to define the rules for the restructuring of the excessive debts of global banks and financial institutions, but most of all governments. The pandemic crisis had a significant impact on gross debt at the global level. The average debt over GDP of Euro Area countries has increased from 84% in 2019 to 98% in 2021, from 108% in 2019 to 127% in 2021 in the USA, and from 234% in 2019 to 256% in 2021 in Japan. The reduction of debt in the subsequent years, based on IMF forecasts, is going to be slow and central banks’ ultra-expansionary policies cannot keep the boat afloat. The economic recovery process after the pandemic crisis cannot eliminate all the pandemic-induced debt. The growth of debt can reach unsustainable levels, but the global financial system still lacks an effective process of debt management. It is time to translate into regulation the nine principles of the UN Basic Principles on Sovereign Debt Restructuring Processes.
G20 2021: The digital challenge
G20 countries have converging economic interests, but they do not have the same approach to managing developments in financial technology. The potential benefits of a wider and deeper access to technology are substantial in terms of reduced costs and increased access for small operators, while costs are mainly related to regulation, both domestic and international. Regulatory arbitrage constitutes a substantial threat to stability and larger economies should coordinate the global technology regulation to avoid the beggar thy neighbor policy response.
Focal points of the global technology regulation are users’ data and users’ rights. The main assets of the digital world, users’ data are managed by a few giant firms in the absence of any public control, or global consumers’ protection system. The balance of power is heavily in favor of big tech companies and the system is characterized by surveillance. Harvard Prof. S. Zuboff describes the current economic system as being centered around the commodification of personal data with the core purpose of profit-making. Users are largely unaware of being monitored, have no rights on their data, while most states haves not yet intervened to limit the possibility of firms to monitor, gather and exploit users’ data, the only exception being the European Union with the General Data Protection Regulation (GDPR).
In the COVID-19 afflicted digital world, most technology revolutions bring financial risks that should be actively managed. The first risk is private digital currencies that have the potential to substitute, at least partially, for central banks’ currencies without any guarantee on liquidity for users. The fear of losing a share of these new markets have so far prevented most countries from regulating them, but time has come to act.
History teaches that relevant changes happen during tough times. The G20 has gained strength since the subprime crisis of 2007-09. In response, it succeeded in putting together much needed financial regulations that are still in place today and it has contributed to making the global economy more resilient. History will probably repeat and in 2021 the G20 will implement a scheme of a fair global tax, for digital and traditional businesses.
The excessive public debts accumulated following the pandemic crisis need common restructuring processes, to avoid new cases like Argentina or Greece, where speculators took advantage of loopholes. The rights of users in the digital world need a global regulation that balances the power of market and the State. The likelihood that all these goals will be achieved is not high; while most G20 countries converged around the global tax scheme, a lot of diplomatic effort is still necessary to agree on debt restructuring processes and digital regulation.
Chiara Oldani is Lecturer of Economic Policy at the University of Viterbo ‘La Tuscia’ and the director for Italy of the G20 Research Group.