The Group of 20 leaders from the developed and developing world gathers in Cannes, France, this week at a critical moment. The global economy is faltering, the European sovereign debt crisis is deepening, and there is rising global unemployment alongside downward revisions in economic growth projections in many countries. Expectations of what the G-20 can accomplish are low.
But G-20 leaders have a choice. They can either work together to resolve the crisis in the eurozone, reverse their own national budget austerity measures and instead invest in quality job creation, and reform key international financial and trade institutions to better reflect the realities of an integrated global economy. Or they can continue to be uncooperative and edge the world closer to a repeat of the financial and economic crises of the previous decade.
President Barack Obama is clear about where he stands. "[T]he crisis in Europe must be resolved as quickly as possible," said the president in a Financial Times op-ed last week. "The European Union is America's single largest economic partner and a critical anchor of the global economy."
President Obama's sentiment is shared throughout the Group of 20. Shoring up Europe's banks and avoiding an unstructured Greek default will be the first and dominant order of business in Cannes. But global leaders can and should go further. In response to the global economic downturn, many nations drastically cut public-sector employment and spending to lower their long-term budget deficits. These harmful austerity measures depress domestic consumption, strain investment, and increase long-term unemployment.
If the G-20 leaders are serious about balanced and sustainable global growth, they will leave Cannes committed to reversing these austerity measures and instead investing in infrastructure, education, and social protection systems to create quality jobs and generate more aggregate demand in their economies. Fiscal responsibility is important in the long term. But it should not be conflated with austerity at a time when the global economy needs a jolt.
The G-20 economies must commit themselves to policies that create "just jobs" complete with appropriate wages, labor rights, and economic opportunity to help grow the global middle class. Access to economic opportunities underpins political and social stability. And a fully employed, productive, and healthy workforce in every nation supports global economic security by expanding markets for goods and services.
Alternatively, rising unemployment, especially among youth, threatens to create a "lost generation" in countries from Tunisia to the United States. Failure to respond to the current crisis with increased public-sector investments in "just job" creation could have devastating long-term costs, among them a loss of valuable productive potential, a smaller workforce to pay into welfare systems, and rising inequality.
Global leaders must also reform international institutions such as the International Monetary Fund, the World Bank, and the World Trade Organization to better reflect the realities of an integrated global economy. The G-20 has been successful in pushing some reform in the governance structures of the International Monetary Fund and the World Bank to better reflect the growing heft of emerging nations in the global economy. But in addition, the IMF's surveillance function must continue to be strengthened so that it can better monitor the global economy, promote transparency, and reinforce the integrity of financial markets.
Most importantly, the World Trade Organization today is ill equipped to deal with the realities of a global economic system where goods and services are produced in processes and production chains that span countries with varying forms of government, marked by different subsidies, currency misalignments, and regulations. The G-20 must initiate a comprehensive review of the World Trade Organization and undertake essential reforms to build an institution capable of dealing with diverse but deeply integrated actors in a 21st century global economy.
Progress in reforming these key multilateral finance and trade organizations would provide a serious long-term step toward sustained economic recovery in the United States and around the world. More immediately, political paralysis in countries around the world over the last few months is giving way to growing protests, which means the G-20 leaders need to stop finger pointing and start crafting thoughtful solutions that work in their own nations and around the globe.
If the G-20 leaders leave Cannes without addressing these different policy areas, then their meeting will have had the unintended consequence of fueling the discontent that is pervasive in protests worldwide. That is a failure that can be avoided. It is also one that would carry high political, economic, and human costs.
President Obama heads to Cannes keenly aware of how interconnected the U.S. economy is with the European Union, China, and the other major emerging economies. Long gone are the days when the United States or the European Union could singlehandedly drive global economic growth or lift the world economy out of recession. It is clear that the United States needs economic cooperation at home and abroad to speed the recovery of global markets, create "just jobs," and quell popular anger over political paralysis to address the concerns of the 99 percent of their citizens.
This is no time for half measures or empty rhetoric-the stakes of ineffective global governance rise each day. "Our challenge is clear," said President Obama. "We must stay focused on the strong, sustainable and balanced growth that boosts global demand and creates jobs and opportunity for our people."