The financial crisis, which is haunting the industrialised countries – with heavy effects on the entire world – served as a catalyst for the emergence of the G20 as the ‘premier forum for economic cooperation’, as the G20 defined themselves in their mandate.

But the roots of the new body lie deeper than the present crisis. The G20 reflect fundamental changes in the global balance of power: the role of emerging markets – in particular China, Brazil, India and a resurrecting Russia – is steadily increasing, whereas the position of the West is relatively weakened. Already today China is a super power. The unilateral dominance of the US after the end of the Cold War was, in historic terms, only a short summer. The world is developing towards a multi-polar system.
End of the tunnel not in sight
The crisis, which had started as a crash of the global financial system, has now become a crisis of public finance of the Northern countries. At the same time, we are witnessing the surfacing of a financial crisis. Dozens of banks in the EU are threatened by default – with unforeseeable domino effect – while governments make desperate attempts to rescue them. In the meantime, all indicators point at gloomy perspectives for the global economy in the coming years.

The crisis management of the EU has been nothing more than muddling through. No substantial solution has been processed. Governments have been driven by the financial markets all the time. This highlights another dimension of the crisis: the erosion of democracy by the dictatorship of the markets.

The end of the tunnel is not yet in sight. And darkness will prevail as long as breaking the dominance of finance over politics remains a taboo. This crisis is not only a banking crisis. It is a systemic crisis. The entire system of finance-led capitalism – or, as Keynes would have called it, casino capitalism – is at stake. The neoliberal paradigm, which has been preached to the world in the last three decades, is bankrupt. As the UN Conference on Trade and Development (UNCTAD) has put it: ‘Nothing short of closing down the big casino will provide a lasting solution.’

G20 – rapid slowdown after a promising start
To be fair, the first G20 summits were rather promising, in particular the one in Pittsburgh, in 2009. The first steps of the crisis management were to a certain extent successful, because, unlike during the Great Depression in 1929, there was a concerted anti-cyclical reaction, which used two basic instruments:

• rescue packages for the banking secto;,
• stimulus programmes for the real economy.

Many details of these measures have to be criticised. In particular, they were too timid vis-à-vis the financial industry, socially unbalanced and they gave away the chance for structural changes as in the case of the old-fashioned programmes to promote the automobile industry. But at least they did not make the fundamental mistake of 1929 and leave the crisis to the market. The bankruptcy of Lehman Brothers was the last instance where the market settled the problem.
The G20 also contributed to building a consensus for a stimulus response to the crisis (rather than the standard neoliberal one of cutting public expenditure) and showed that multilateral cooperation can make a difference. Unfortunately, once the worst had been prevented, the illusion emerged that the crisis was over and the world could return to normal.

The proposal of the Pittsburgh summit  for financial reforms contained a large package of reform steps, which went in the right direction, such as:

• improvement of supervision;
• increase of capital requirements;
• ending shadow banking;
• regulating risky instruments such as credit default swaps and other derivatives;
• regulating rating agencies.

The US and the EU has tried to initiate reform processes. However, the results are meagre. These reforms:

• are too slow and have come too late;
• are watered down by the lobby of the financial sector;
• are blocked by political opponents, such as the Republicans in the US or the UK government in the EU.

Even the German minister of finance acknowledged this failure: ‘We have not even made it half way’, was his terse assessment.

The main problem is that the reforms remain from the beginning far below what is required by the dramatic situation. It is like stopping a big fire with water buckets. The proposals are limited to re-establishing financial stability. Of course, financial stability is a public good and deserves support also from civil society. But stability is not enough. The dominance of speculation and the rule of finance over the real economy must be broken.

The limits of efficiency
It has been said very often that the G20 has a democratic deficit. In fact, it excludes 174 non-member countries and further deepens the marginalisation of the UN – a marginalisation legitimised by the support and presence of the emerging countries.

The exclusion of 174 countries is justified with the claim that involving all 194 countries would be ‘inefficient’. So much for democracy! However, if small is efficient, the bi-polar system of the Cold War with its two main actors would have been highly efficient. Obviously, the configuration of interests is more important than the sheer number of actors.

With this perspective, we realise that there are considerable differences and conflicts of interests among the G20 members, such as:

• the upcoming rivalry between the US and China, which in its essence is a conflict over global hegemony in the future;
• the conflict of interests between the ‘newcomers’ and the established powers, the latter ones trying to preserve their position, the newcomers to climb up the ladder;
• the economic competition and the competition for strategic resources between the major transnational corporations and countries;
• the different degrees of affectedness by the crisis and hence the different strategies to overcome them;
• the different development models such as the state-centred and interventionist concept of China, Russia and to a lesser extent of India and Brazil, or the Continental European model of social market economy and the Anglo-Saxon model of free market capitalism;
• the different political cultures, ranging from the Western type of democracy, via post-communist rule based on majority vote like in Russia, to a feudal regime (Saudi Arabia) and finally the Chinese version of what was once supposed to be socialism.

As a consequence of this heterogeneity, the national interests are still stronger than multilateral cooperation as soon as the vital interests of a country are involved. The heterogeneity of interests and big power rivalries risk turning the G20 into an arena for the fight for global hegemony and the pursuance of national interests. The summits in Toronto and Seoul seem to confirm this apprehension. There was and agreement to not agree over important issues, such as the global trade imbalances or the strategy to exit from stimulus packages.

Most emerging countries will be aware of the contradictions inside the G20, and it seems as if some of them develop a strategy of their own. Thus, the so-called BRICS states (Brazil, Russia, India, China, South Africa) try to organise themselves in a separate platform. This process is at the very beginning, and it is not yet clear where it will lead. In terms of power politics, on the one hand it could be an attempt to create a power centre outside the G20, which then might be used to influence the G20 more efficiently. On the other hand, the differences and the heterogeneity of interests among the BRICS are also considerable.

All these are new developments and it is difficult to predict their outcome. But behind the background of a heterogeneous and conflictive configuration in the G20, the expectations around the capacity of the institution to deliver substantial solutions should not be too high. What remains is an old – and adapted – truth: No G20 will save us from misery. We must do that ourselves!

Peter Wahl is director of the department for Financial Regulation of the German NGO WEED (World Economy, Ecology and Development) and founder of Attac Germany.