A Few Words About Economic Summitry
July 7, 2008
The summit of G8 world leaders is underway in Toyako on the island of Hokkaido, Japan. The eight self-selected members are the United States, Japan, Germany, France, Britain, Italy, Canada, and Russia. The first of these annual rituals involved finance ministers, was held in the Paris suburb of Rambouillet in November 1975, and was in fact a G6 gathering. Canada was added in 1976, and Russia got invited in 1997. Locations are rotated around the group. This is the fifth summit hosted by Japan and the third, including those in June 1979 and May 1986, in which oil will be a high priority because of an extraordinary move in oil prices during the previous year. At its conception, the main purpose of an annual summit was to promote greater coordination toward the goal of economic and financial market stability and, according to the January 1976 Treasury and Federal Reserve joint report on foreign exchange operations, and to pledge a common purpose “to act to counter disorderly market conditions or erratic fluctuations in exchange rates.”
While the original intent of the gatherings was crowded out in subsequent years by various other economic and/or purely political topics, the backdrop for the Toyako summit fits perfectly into what the framers of these meetings had in mind. As a decision-making and action-galvanizing venue, G7 summits have fallen far short of the mark. More than once with the benefit of hindsight, they have produced greater harm than good, and as the balance of world power and influence over economic forces has shifted in the ensuing third of a century, the invitation list has looked increasingly anachronistic and out of touch. From a purely political standpoint, the last addition of Russia was ill-advised, as that nation under Putin has regressed back into authoritarian rule and away from democracy. In economic terms, it’s unrealistic to try settling any big global issue without China, India, Brazil or OPEC. Some summits have elicited currency-moving comments such as in July 1994, when President Clinton observed that the dollar had dropped to historic lows only against the yen, voiced personal skepticism about the long-term effectiveness of currency market intervention, and cautioned against an over-reaction to recent movements in the dollar. But those occasions have been the exception rather than the rule. One of the legacies of the annual summits is a recommendation made in the latter 1980’s for G7 finance ministers and central bankers to meet a few times each year to pool thoughts on macroeconomic conditions and policies. From that vision, a routine of three meetings — in winter and at the two IMF/World Bank gatherings in April and Sepembert/October — has evolved, and it is at these meetings that the heavy lifting of currency market policy-making gets done. These events have a greater propensity to affect financial markets immediately than do the summits of G8 leaders.
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