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G20: On the edge in Los Cabos

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15 June 2012 16:42

Next week it will be time for another meeting of G20 leaders, this time in Los Cabos, Mexico. The meeting will follow key elections in Greece this weekend, with financial markets fearing that the polls could be the trigger for an intensification of the eurozone crisis.

Indeed, there's a sense that the eurozone is approaching yet another potential tipping point, as was the case towards the end of last year, before the ECB stepped in with what ended up being almost one trillion euros of support. Since a eurozone disaster could be calamitous for the world economy, markets will be looking to the G20 to help calm the situation.

Unfortunately, as I noted in the aftermath of last year's Cannes Summit, while it's inevitable that the eurozone crisis will dominate G20 discussions, saving the euro is an incredibly tough ask for the group. My view hasn't changed.

Sure, there are useful and important things the G20 can do: the pledge by central bankers to step in and stabilise financial markets if needed is one example; doing a better job in pushing through the combined deal on IMF funding and representation would be another; and there is real value in keeping the pressure on the Europeans to do the right thing. But the solution to the eurozone crisis lies with Europe's leaders, and at Cannes, the G20 demonstrated its limited ability to force common sense on Berlin, Athens and the rest. Indeed, some are already writing off the G20's chances this time.

Still, while it's important to be realistic about what the G20 can deliver, it's also true that the group cannot afford for Los Cabos to be seen as a failure, if it wants to maintain its claim to be the world economy's pre-eminent international economic body. That's because the stakes are so high. 

Indeed, arguably the last time G20 leaders were meeting at an equivalent time of global economic vulnerability was at the London Summit back in April 2009. That meeting turned out to be a success, in large part because leaders managed to do enough to reassure markets that the world economy would not be allowed to collapse on their watch. That London Summit has come to be seen as 'the moment the G20 came of age', although this judgment is also influenced by a degree of disappointment regarding the meetings that followed. 

Los Cabos now offers an important chance for leaders to build on that earlier success. Let's all hope they don't blow it.

Photo by Flickr user jon smith.

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