LSE Institute of Global Policy
Report of the G20 EPG on Global Financial Governance
What Europe Should Do with it
Marek Belka
Former PM and Finance Minister of Poland, Head of European Dept, IMF
Marek Belka

2019 is another important year for Europe. The United Kingdom will most probably leave the EU and and we will all have to redefine our mutual relations within the continent and in the global community. In May 2019, election to the European Parliament will take place. Its future composition, but also the turnout at the polls in all 27 EU members may be decisive for the future of integration. Some time later, a new Commission will be formed, reflecting the ever-changing political landscape. This is a time for disscussing priorities and challenges facing Europe, even if realistically the “tyrany of status quo” will inevitably put a big pressure on us.

Four major factors shaped the fortunes and misfortunes of Europe in the last decades.

First, the creation of Euro – the common European currency, made the integration seem inevitable and irreversible, helped European firms to grow to a global significance but also made the economy of the continent more vulnerable to external shocks. This latter problem is generally attributed to the fact that the common currency lacks sufficiently solid institutional underpinnings.

Second, globalisation benefited people of the whole world, albeit not to the same extent, and even hurt some, including in the most advanced societies. It helped pull billions out of extreme poverty (particularly in Asia, and in Latin America), but having changed relative prices of production factors depressed the incomes of commodity importers and undermined the economic security of middle-class people in many advanced countries. We can see it in less dynamic and less agile European societies.

Third, the Global Financial Crisis of 2008 originated in the American financial sector, hit Europe most, and exposed its vulnerability and insufficient resilience. The crisis exacerbated the existing weaknesses in European economies and gave rise to populism.

What the report recommends is a cooperative approach: with the host-country authorities, with private investors, among public and private donors, among IFI’s, etc.

Fourth, immigration into Europe has proceeded for decades, caused by colonial past of some European countries, poverty and war in the so-called Third World and relatively liberal approach to the immigrants in most of the continent. Drammatic change occured in the recent years. The belief in multicultural and multireligious societes was replaced by apprehension and growing animosity. This created a propitious environment for inward-looking and openly xenofobic political parties.

Europe faces many challenges and must tackle them in an open and pragmatic way, not giving up on her values. Most of these challenges can be effectively tackled in a context broader than intra-European.

Here enters the report, that was mandated by G20 under the G20 Presidency of Germany. The key issues covered by the report are how to achieve greater development impact, securing the benefits of interconnected financial markets and making the G20 itself and the IFI’s work as a system. The report is predominantly a call in defence of global cooperation, a call on the G20 to take initiative to make the world better and its institutions to respond to the needs of the present time in a proper way. The authors of the report explicitely invite the G20 to refocus its activities on strategic issues, suggesting that “within three years it should steer the reorientation of development finance before handing the coordination role to the IFI Heads”.

The implicit and, yes, explicit focus of the report is Africa. “To bend the arc of history, we must succeed in Africa”. This is the region where progress in eliminating poverty is least obvious, where economy depends too much on the vagaries of commodity markets, where natural environment is most fragile, war is too frequent, and where climate change will have a punishing impact on the livelihoods of the people. Most importantly, Africa is still on the steepest part of the S-shaped curve of demographic development. Suffice to say, in the coming decades there will be almost the same number of new labor market entrants as in the whole of Asia. Africa is a close neighbour of Europe and the main source of immigration. So, the succes in mitigating Africa’s problems is of existential importance to Europe.

The United Kingdom will most probably leave the EU and and we will all have to redefine our mutual relations within the continent and in the global community

What the report recommends is a cooperative approach: with the host-country authorities, with private investors, among public and private donors, among IFI’s, etc. Country and regional cooperation platforms should minimize duplication and waste, prevent corruption, and maximize development impact. What is thus needed is a culture of disscussion and compromise. Something that we in the EU are engaged in daily. Europeans practice it in the process of structural funds absorption, where national interests are reconciled with community considerations and more general rules. The IMF-EC-ECB troikas had to learn how to work jointly on country programs in the aftermath of 2008. The Vienna Initiative experience shows that Europeans are able to work within a very complex set of private and public institutions avoiding a temptation to dominate, instead looking for consensual solutions. So the know-how is there. European diversity is a clear strength.

What about instruments? There are plenty of them in Europe. Two DG’s deal with it (International Cooperation and Development, Humanitarian Aid and Crisis Management), more than 10 billion Euro are spent by the Commission itself. EBRD and EIB with the European Development Fund provide a strong institutional infrastructure. If we add national development agencies, we may even conclude that Europeans have too many instruments and intra-European coordination may be a problem in itself.

The G20 EPG report focuses on issues that are of vital interest to Europe, it recommends a cooperative approach that conforms with our values and culture of operation. Finally, the report underlines the necessity for the IFI’s and all public and private stakeholders to work as a system. Do not allow the report to be shelved! Use the G20 as a platform to showcase European leadership for sustainable development.

Marek Belka is a politician and professor of Economics, a former Prime Minister and Finance Minister of Poland, former Director of the International Monetary Fund’s (IMF) European Department and former Head of Narodowy Bank Polski (National Bank of Poland). From 1990 until 1996 Belka worked as consultant for the Ministry of Finance of the Republic of Poland and the World Bank. He served as Deputy Prime Minister and Minister of Finance in 1997 and from 2001 to 2002; and as an economic consultant of the President of the Republic of Poland in the meantime. He also served as Adviser to the three successive Prime Ministers of Albania from 1997 to 2001. Later, Belka worked as an advisor to JP Morgan for Central and Eastern Europe from 2002 to 2003. In 2003 he was responsible for economic policy in the interim Coalition Provisional Authority of Iraq.