The EU, the G7/G20 and the IMF Mirco TOMASI DG ECFIN Unit D3 – IMF and G-groups

1. The EU, the G7/G20 and the IMF Mirco TOMASI DG ECFIN Unit D3 – IMF and G-groups Alpeuregio Summer School on Institutions and Policies of the European Union 2017 11 July 2017

2. Contents • A bit of history • The G7 • The G20 • The EU role in the G20 and G7 • The IMF • Challenges for the future

3. A bit of history

4. A bit of history Global economic governance in historical perspective • Post-WWII: global economic governance structured around the Bretton Woods system (IMF, World Bank) and GATT (later WTO) • International monetary order was essentially unipolar: central role of US dollar • First oil price shock brought down the system • After that, no structured agreement (some countries adopted floating Exchange Rates; other fixed Exchange Rates; others limited capital mobility)

5. A bit of history Impact of the financial crisis on global governance: The financial crisis demonstrated global interdependence and importance of effective global governance: • Spillovers via financial markets can have dramatic consequences • Financial and monetary stability have a global dimension • In a post-crisis world, close cooperation between policy makers is essential to avoid 'beggar-thy-neighbour' policies

6. The G7

7. The G7 Origins of the G7 • Starts as G6 in 1975: FR, DE, IT, JP, UK and US. • Context: onset of the worldwide economic recession and oil crisis. • Canada joins in 1976 • The European Community "is represented" since 1977 (but in all sessions since 1981) • Russia joins in 1997 • Following Russia/Ukraine crisis in 2014, return to G7 format. • 2017: Italian G7 Presidency • 2018: Canada G7 Presidency

8. The G7 Italian G7 Presidency • On the agenda: • Global economy • Trade • Foreign, security and developmentpolicy • Climate and energy • G7 Finance Ministerial: 11-13 May, Bari • G7 Summit: 26-27 May, Taormina • Canada will take over G7 Presidency in 2018

9. The G20

10. The G20 The G20 • Launched in 1999 (after the Asian economic crisis) at the level of Finance Ministers and Central Bank Governors • Upgraded to Leaders level since 2008 (as a response to the global financial and economic crisis) with initially 2 Summits per year until 2011, thereafter just one Summit a year) • 2009 Pittsburgh Leaders Summit: “Today, we designated the G-20 as the premier forum for our international economic cooperation” • Scope: mainly international economic cooperation, but with a continuously expanding agenda; • 2017 German Presidency • 2018 Argentinian Presidency

11. The G20 85% of global GDP 80% of world trade 2/3 of the world's population G20 Membership

12. The G20

13. The G20 G20: key decisions … and Hamburg?

14. The role of the EU in the G7 and G20

15. The role of the EU The Commission role in G20/G7 • EU is a permanent member of G20/G7 • in G20 EU is represented by the Commission, the ECB and the EU Council Presidency or • in G7 EU is represented by the Commission, the ECB and the Eurogroup Presidency in the finance track • Coordination of common EU position on key topics: • - in Brussels through ECOFIN, EG, EWG, EFC, EFC-A and SCIMF • Opportunity to promote EU initiatives • COM facilitating and implementing G20 commitments at EU level - e.g. on investment, international tax transparency, financial regulation, trade

16. The role of the EU G20 working loop for the EU • President Junck and Tusk (Leaders' level) • Cssr Moscovici (Ministerial level) • Marco Buti (Deputies level) • EU position is coordinated with EU MS • and ECB in the Terms of Reference (ToRs) • and adopted by ECOFIN • Communiqués are negotiated by COM in coordination Member States, and ECB

17. The role of the EU The G20 Process

18. The IMF

19. The IMF The IMF - Origin and Mandate • 1944: Founded in Bretton Woods by 45 countries • to avoid beggar-thy-neighbour policies that contributed to the Great Depression and regulate international trade • Powers of the Fund are anchored in the Articles of Agreement • Main mandate: "to ensure the stability of the international monetary system" • It does so in three ways: surveillance, lending, technical assistance

20. The IMF The IMF's Quota System • Capital subscriptions or "quotas" are based on members' relative position in the global economy • Multiple role of quotas: (i) primary source of loanable funds (ii) affect members’ access to Fund resources, (iii) determine members' voting power

21. The IMF Member States Voting Power • United States: 16,35% • Japan: 6,16% • China: 6,09% • Germany: 5,32% • France: 4,04% • UK: 4,04% • Russia: 2,59% • EU countries together: ca. 32%

22. The IMF Governance structure – Executive Board • MD is Chairman of the Board • 24 Executive Directors • Currently eight single chairs (US, JP, DE, FR, UK appointed, SAU, CHN, RUS elect themselves) • 16 multi-country constituencies: Chairs represent groups of countries • From election in October 2016: all elected Board • EU/EA countries spread over 3/2 single seats and 10/8 constituencies

23. The IMF Commissions main role: coordination • Further integration of Euro area and changes in EA governance - but EU/EA fragmented in constituencies, not an EU/EA voice in the Executive Board • Coordination of common EU positions on key topics: • in Brussels through EFC-Subcommittee on IMF issues (SCIMF) • in Washington through the EURIMF • COM advisor to EURIMF President

24. The IMF External Representation • Commission presented a communication and a legal proposal in October 2015 • Three main elements: • strengthened coordination among the MS of the euro area • streamlining the representation of the euro area • a unified representation of the euro area by 2025 (single seat) • ECOFIN in June 2016 endorsed an EFC report • Agreement to improve coordination and to more systematically issue common EU statements of matters with significant EU or euro area relevance • Work on proposals to unify euro area representation and to analyse related issues will continue

25. Challenges for the future

26. Challenges for the future Challenges to multilateralism: Renewed global imbalances as trigger Current Account 2016 (% of Global GDP) Source: Calculations based on IMF Data Mapper

27. Challenges for the future Challenges to multilateralism • Trade shift to bilateralism • International Monetary System (Crisis Management, IMF) US disengagement • Tax competitive tax shifts • Financial Regulation rolling back • Migration lacking cooperative solutions • Climate change US reneging

28. Challenges for the future G20: key challenges • Moving from short-term crisis response to cooperation on long-term challenges for the global economy: "winning the peace" • Delivering on implementation of existing commitments (e.g. on tax transparency, financial regulation) • Finding points of common interest among diverse membership to drive cooperation on new topics (e.g. on anti-terrorism financing, digitalisation, cyber crime) • Increased awareness of the threat of populism and inclusiveness • Challenges towards multilateralism • Risk of renewed global imbalances

29. Challenges for the future G7: key challenges • G7 as internal caucus on key G20 matters: trade, financial regulation, climate change • G7 as locus to overcome differences: macroeconomic policy, tax cooperation • But consensus has broken down: • Bilateralism threatens multilateral, rules-based system • Traditional assumptions are questioned • Mistrust risks setting in

30. Challenges for the future IMF: Key challenges • IMF Quota and Governance Reform (Size of quota increase, distribution of quota shares, new quota formula) • IMF Lending Toolkit (introduction of new instruments) • IMF-RFA Cooperation (cooperation with Regional Financing Arrangements, such as ESM/COM)

31. Challenges for the future But the big challenge of all remains… …the willingness to cooperate!

32. Thank you for your attention!