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Analysis

The Los Cabos Summit’s Strong Start

John Kirton
G20 Research Group, University of Toronto
June 19, 2012 09:45 MDT

The G20's Los Cabos Summit has gotten off to a strong start on its central challenges of controlling the escalating Eurocrisis, producing a credible plan to boost global growth and jobs, and raising resources for any rescues the International Monetary Fund (IMF) might need to be called on to take.

On the number-one issue of controlling the Eurocrisis, European leaders, with other G20 members' pressure and support, said they would move quickly toward a banking union, through the specific steps of pan-European supervision and deposit insurance. They also signalled their intention to produce a serious fiscal union, with effective sanctions for those who broke the agreed rules on deficits and debt. These steps were sufficient to calm sceptical bond markets, as the yields on benchmark 10-year Spanish bonds, which had been steadily rising to historic highs above the critical 7% threshold the previous week, finally started to decline as European markets opened on the G20 summit's second day.

On the second issue of generating global growth and jobs, G20 leaders prepared an action plan that put a strong emphasis on growth, including through greater government spending by those countries where debt and deficit levels were relatively low. Looking ahead six months, U.S. president Barack Obama pledged that he would do all he could to prevent the U.S. from falling off the looming "fiscal cliff" at start of 2013.

On the third issue of raising resources for the IMF, by the time the leaders went to sleep after their first day, Mexican president Felipe Calderon as host had announced that the $430 billion total assembled by finance ministers in Washington in April had now been raised to $456 billion. A big part of the boost brought by new pledges from 12 countries came from China's announcement at the G20's evening dinner session that it would contribute $43 billion. South Africa promised $2 billion and the other three other members of the BRICS — Brazil, Russia and India — pledged $10 billion apiece, meaning that all the BRICS countries backed the IMF. While China's $43 billion was substantially less than the $60 billion that most watchers had thought China would offer, it was enough to maintain the momentum of this G20 summit as a great global fundraiser and allow Calderon's pre-summit prediction of Los Cabos surpassing the previous $430 billion total to come true.

These significant advances were the result the G20 leaders first working session starting at 15:30 on Monday, June 18, its evening dinner session, if not a subsequent meeting between the European leaders and Obama alone, which was cancelled. They also flowed from the conclusions of an informal, on-site BRICS summit on the morning of June 18, and a statement by the G7 finance ministers and central bank governors the day before.

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