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  G-8 Summit in the Rubble: Little Real Progress Expected in L'Aquila

G-8 Summit in the Rubble Little Real Progress Expected in L'Aquila

By Anne Seith in Frankfurt

The leaders of the Group of Eight leading industrial nations will meet in the earthquake-hit Italian town of L'Aquila from Wednesday to discuss the global financial crisis and climate change. The summit is aimed at aiding the reconstruction of the town and the world financial system -- but the prospect of progress on either is slim.

The backdrop is replete with symbolism. Many houses in the central Italian town of L'Aquila, hit by a devastating earthquake in April, are little more than rubble. Tens of thousands of people in the region live in tent cities in conditions made even more miserable by the heat.

Like L'Aquila, the world economy and global financial system are in ruins. And like in L'Aquila, the reconstruction efforts in the financial markets lag far behind the ceremonial declarations.

This shattered town is hosting the G-8 summit of the world's leading economies beginning on Wednesday, and its inhabitants have little hope that the meeting will bring any fundamental improvement to their lives. Expectations that the summit itself will yield much progress are similarly muted.

There won't be more than "vague declarations of intent," says Milena Elsinger, an analyst at the German Council on Foreign Relations(DGAP).

Like before every G-8 summit, expectations are running high. World Bank President Robert Zoellick urged the host, Italian Prime Minister Silvio Berlusconi, not to be complacent about the outlook for the economy. "2009 remains a dangerous year," he wrote. Pope Benedict XVI sent Berlusconi a letter calling on him to be guided by ethical principles in tackling the crisis. And last weekend saw the first clashes between anti-globalization protestors and police.

Helpless G-8

But the hype seems unwarranted given that the summit is unlikely to produce much concrete progress on financial market regulation. Since the crash of US investment bank Lehman Brothers last autumn, efforts by governments to set international standards for the financial sector have ground to a halt in tough negotiations.

Diverging national interests stand in the way of an agreement. One of examples is the recent dispute between Germany and Britain about the powers of planned EU regulatory authorities. German Finance Minister Peer Steinbrück accused British Prime Minister Gordon Brown of merely representing the position of the London financial lobby in the talks.

The longer the disagreements continue, the less likely it becomes that the world will be able to agree on a "new Bretton Woods," as had been promised. There probably won't be a global regulatory authority, says the Chief European economist of Deutsche Bank, Thomas Mayer.

Besides, the G-8 is an outdated forum for tackling such issues. The US, Germany, Italy, Britain, France, Canada, Japan and Russia have limited scope to deal with such a global problem. German Chancellor Angela Merkel declared even before the summit that the significance of the G-8 is waning. The G-20 will become the forum for discussing the global economic order in future, she said.

"The L'Aquila summit will have a kind of bridging function," says Elsinger of the DGAP. It will lay the groundwork for the G-20 meeting in Pittsburgh in September.

Merkel Wants to Shine Before Election

Still, government leaders, and especially Merkel, aren't shying away from grand promises about all the things they plan to achieve in Italy this week. After all, the summit offers Merkel a good opportunity to shine on the world stage ahead of Germany's federal election on September 27.

In a bid to reinstate her credentials as the Climate Chancellor, Merkel said L'Aquila should provide a "decisive signal" for December's climate change talks in Copenhagen. She wants to persuade fellow G-8 leaders to issue a communiqué pledging to limit global warming by 2050 to no more than two degrees compared with the pre-industrial age.

Her chances of success depend on US President Barack Obama. Before he took office, he too portrayed himself as climate savior. But a much-celebrated new law that has yet to be passed by the US Senate doesn't envisage relevant cuts in CO2 emissions by the world's biggest CO2 polluter until 2050. Obama simply doesn't have the backing of the US population to go any further.

Climate change isn't the only issue where the G-8 will make its communiqués as complex as possible to mask its own powerlessness. Another example is the deadlocked Doha round of the world trade negotiations. Merkel says the G-8 summit will try to push for a completion of the Doha round which has been getting nowhere for years in its bid to reduce trade barriers. WTO Director-General Pascal Lamy will be travelling to L'Aquila.

But the prospect of real progress is slim given the current state of world trade. Ever since the world economy collapsed, politicians have been promising to enhance global cooperation. But in reality many are increasingly protecting their domestic markets, as a recent WTO report shows. "In the past three months there has been further slippage towards more trade restricting and distorting policies," Lamy said in a report to WTO members.

Billions for Africa?

Africa is the only area where mild progress looks likely. Until now, the G-8 has cut a poor figure on development cooperation. At the 2005 summit in Gleneagles, Scotland, G-8 leaders promised to increase annual aid to Africa by $25 billion (€17 billion) by 2010. By 2008 only a third of that goal has been reached, non-governmental organization ONE has calculated. ONE also had some embarrassing figures for Italy -- the current G-8 host has only paid out 3 percent of what it had promised.

"It's true: we haven't kept our promises on Africa," a contrite Berlusconi admitted in an interview with Irish rock singer and Africa activist Bob Geldof, who edited the newspaper La Stampa for a day on Sunday.

It's unclear if L'Aquila will agree a timetable for the remaining aid increases. But the G-8 appears to have agreed to pay $12 billion in farming development aid in the coming three years, the Financial Times reported, citing a draft communiqué prepared for the summit. The US and Japan will each pay $3-4 billion, the report says. Europe and Canada will come up with the rest.

But the biggest G-8 success would be if it managed to make progress on its own reform, says Elsinger of the DGAP, because it's no longer justifiable for the Western nations to meet in isolation. Pressing ahead with the integration of the five most important emerging economies Brazil, India, China, Mexico and South Africa, the leaders of which will join the summit on Thursday, would be an important first step.