Baba’s Explainer – G7

• The G7 draws its roots from a meeting between the current G7 members, excluding Canada, that took place in 1975. At the time, the global economy was in a state of recession due to the OPEC oil embargo.
• As the energy crisis was escalating, US decided that it would be beneficial for the large players on the world stage to coordinate with each other on macroeconomic initiatives.
• After this first summit, the countries agreed to meet annually and a year later, Canada was invited into the group which marked the official formation of the G7 as we know it.
• The President of the European Commission was asked to join the meetings in 1977 The EU is not a member of the G7 but attends the annual summit.
• Following the collapse of the Soviet Union in 1991 and a subsequent warming in relations between the East and West, Russia was also invited to join the group in 1998. Thereafter the group was named the G8 until 2014, when Russia was expelled for its annexation of Crimea from Ukraine.
• The presidency of G7 meetings is held by each of the seven countries in turn, each year. The country holding the presidency is responsible for organising and hosting the meeting.
  • Depending on the key themes chosen by the Presidency, non-member countries and international organizations are invited to take part in ministerial meetings and certain summit sessions
• While G7 initially focused on international economic policy, in the 1980s, the G7 extended its mandate to include issues related to foreign policy and security as well. In recent years, G7 leaders have met to formulate common responses to challenges encompassing counterterrorism, development, education, health, human rights and climate change.

The G7 Summit has been the birthplace for several global initiatives.

• In 1997, the G7 countries agreed to provide $300 million to the effort to contain the effects of the reactor meltdown in Chernobyl.
• Then, at the 2002 summit, members decided to launch a coordinated response to fight the threat of AIDS, Tuberculosis and Malaria.
  • Their efforts led to the formation of the Global Fund, an innovative financing mechanism that has disbursed more than $45 billion in aid and has saved the lives of over 38 million people.
• More recently, the Global Apollo Program was launched out of the 2015 G7 summit meeting. Designed to tackle climate change through clean energy research and development, the Apollo Program was conceived by the UK but failed to generate traction until the other G7 countries agreed to support it.
  • The programme calls for developed nations to commit to spending 0.02% of their GDP on tackling climate change from 2015 to 2025; an amount that would total USD 150 billion over a 10-year period.
• The main benefit of the G7 is that it is a driving force and a space where new solutions can be tested, before being promoted in other forums such as the United Nations and multilateral technical or financial institutions. G7 is thus viewed as supporter of UN
• The G7 has been behind very concrete achievements including the creation of
  • Financial Action Task Force (FATF)
  • European Bank for Reconstruction and Development (EBRD)
  • Deauville Partnership launched after the “Arab Springs”
  • Muskoka Initiative to reduce maternal and infant mortality
• The G7 has strengthened international economic and security policies, advanced discussion of key global issues including climate change and gender equality, brought donors together and supported disarmament programs.

Despite its achievements, the G7 has also come under significant criticism and has been involved in a number of controversies.

• Until the mid-1980s, G7 meetings were held discreetly and informally. Hence, there were allegation on its non-transparent functioning.
• However, after discussions at a G7 summit in 1985, member countries subsequently signed the Plaza Accords, an agreement that had major ramifications for global currency markets.
  • The Plaza Accord was a 1985 agreement among the G-5 nations of France, Germany, the U.K., the U.S., and Japan.
  • The goal of the Plaza Accord was to weaken the U.S. dollar in order to reduce the mounting U.S. trade deficit. It aimed to manipulate exchange rates by depreciating the U.S. dollar relative to the Japanese yen and the German Deutsche mark.
  • The Plaza Accord led to the yen and Deutsch mark dramatically increasing in value relative to the dollar.
  • An unintended consequence of the Plaza Accord was that it paved the way for Japan’s “Lost Decade” of sluggish growth and deflation
  • The intention of the Plaza Accord was to correct trade imbalances between the U.S. and Germany and the U.S. and Japan, but it only corrected the trade balance with the former.
• Their actions caused strong international backlash, with other nations upset by the fact that a meeting between a small group of countries could have such a disproportionate effect on the world economy.
• Following that backlash, the G7 began to announce the agenda for their meetings in advance so that markets could prepare themselves for potential changes in global macroeconomic policy.
• However, several countries and individuals still perceive the G7 as an exclusive, closed group that blatantly exercises their power over other nations.
• As a result, virtually every summit since 2000 has been met with protests and demonstrations in the country in which it has been held.
• The election of Donald Trump in 2016 also caused some friction between the G7 member nations that tested the cohesiveness of the grouping.
  • For example: Germany and US have slightly differing position on how to deal with Russia and China
  • In 2019, the 45th G-7 summit held at France was unable to issue a joint communiqué due to differences on various issues— a first in its history.
• The G7 has been criticised for being outdated and ineffective in recent decades due to its exclusion of two of the world’s largest economies in India and China.
  • There has been growing calls for India’s inclusion into the group; however, some argue against it, pointing to India’s much lower GDP per capita relative to other states.
  • Former U.S. President Donald Trump had announced that he would like to expand G-7 to a G-11, by adding India, Russia, South Korea and Australia.

• Expansion is needed to improve the groupings effectiveness as a multilateral forum to arrive at consensus on issues like climate change, security contributions, space cooperation etc. It is only through expansion the grouping can be effective and suited to the times.
• India had welcomed the decision and commended Former US President Trump for his “creative and far-sighted” decision to expand the format of the grouping to keep up with the new realities of the “post-COVID world”.
• The proposed G-11 grouping would recognise India’s place amongst the world’s richest nations. Membership will acknowledge India’s global voice
• It will provide a platform for India to address its concerns like terrorism and ensure that world work towards it
• It helps increase the soft power of India
• Exclusion of China from G-11 means possible strengthening of India’s alliance against China
• This is step in democratization of international institutions which are facing the criticism of being biased in favour of developed countries.
• Note that a separate G20 forum was formed in 1999, so as to bring more countries on board to address global economic concerns. India is a member and is slated to host G20 summit in 2022.

• During the three-day meeting, the G7 leaders discussed a wide range of topics including
  • Ukraine and cooperating on foreign policy
  • Addressing energy and food security
  • Investing in climate and health
  • Promoting partnerships for infrastructure and investment
  • Shaping the global economy
  • Advancing gender equality
  • Shaping international cooperation

Major outcomes of the summit

• Reiteration of Democratic Values– The G7 leaders adopted a communique to jointly defend universal human rights and democratic values, the rules-based multilateral order and the resilience of democratic societies.
• Support for Ukraine– The G7 leaders re-emphasised their condemnation of Russia’s illegal and unjustifiable war of aggression against Ukraine. G7 countries have pledged and provided EUR 28 billion in budget aid and are strongly committed to support Ukrainian reconstruction through an international reconstruction plan.
• Reduced Energy Dependence on Russia: The G7 leaders committed to phase out dependency on Russian energy. They ensured to secure the energy supply and reduce price surges by exploring additional measures such as price caps.
• Food Security: The G7 countries will also increase global food and nutrition security through the Global Alliance on Food Security.
• Supply Chain Resilience- The G7 leaders remain committed to coordinate on economic security, strengthen the resilience of supply chains while tackling rising costs of living for citizens.
• Climate Cooperation: The G7 leaders endorsed the goals of an international Climate Club to accelerate the implementation of the Paris Agreement. G7 leaders committed to highly decarbonised road sector by 2030; fully or predominantly decarbonised power sector by 2035.
  • The Climate Club, as an intergovernmental forum of high ambition, will be inclusive in nature and open to countries that are committed to the full implementation of the Paris Agreement
  • Indian Prime Minister highlighted Global Initiative for LiFE (Lifestyle for Environment) campaign. The goal of this campaign is to encourage an eco-friendly lifestyle.
• Investment Partnership: G7 countries have launched the Partnership for Global Infrastructure and Investment (PGII), a joint initiative to fund infrastructure projects in developing countries. Through the partnership, they aim to mobilise USD 600 billion over the next five years to narrow the global investment gap.
• Health- The G7 leaders reaffirmed their commitment to equitable global access to safe, effective and affordable vaccines, therapeutics, diagnostics and other essential medical goods. Leaders also endorsed the G7 pact for pandemic readiness.
• China: G7 expressed its concern about the situation in the East and South China Seas and about also the human rights situation in China (Hongkong, Xinjiang issues). They called on China to pressurize Russia to withdraw its troops from Ukraine.
• Iran: G7 reiterated its clear commitment that Iran must never develop a nuclear weapon and diplomatic solution remains the best way to restrict Iran’s nuclear programme
• Civil Society Cooperation: G7 leaders will also cooperate with civil society and partners to
  • Strengthen the resilience of our societies
  • Promote human rights online and offline
  • Address disinformation
  • Achieve gender equality