Important points in the E.U’s remarks on the G20 summit

This article is drawn on the joint statement made by European Council President, Herman Van Rompuy, and European Commission President, José Manuel Barroso, on September 6, 2013.
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The European Union perceives the September 2013 G20 summit a success for its broad goals. It believes that the G20 summit cemented the global paradigm shift towards fairer taxation through its endorsement of automatic exchange of tax information. The Union says that this action of the G20 contributes in a significant way to making sure that ‘companies and individuals pay the taxes they are due and which are badly needed in these difficult times.’
The E.U commended the G20 for consistently implementing the Basel III capital rules as well as addressing the risks of shadow banking through strengthened oversight and regulation.
At the summit, there was a clear recognition that growth based on debt is not sustainable. Instead, the G20, to the E.U’s delight, placed importance on “open, free and fair trade as a source of growth and development.” The G20 also “reconfirmed their antiprotectionism commitment by extending the Toronto standstill to 2016 and stepping up efforts to roll back trade restrictive measures, as called for by the European Union.”
Finally, the G20 encouraged the E.U to continue implementing their comprehensive [financial] crisis response including the swift adoption and implementation of a banking union.”
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Analysis
I would focus on two key points here. The first is the recognition that growth based on debt is not sustainable. And second, the endorsement of the automatic exchange of tax information.
Until the 2009 ‘global’ financial crisis, the orthodox way of thinking of economic growth was strongly attached to cash flow. This continues even now, however with some important changes. Eurozone finance policies in response to the crisis have been heavily influenced by a research study carried out by Carmen M. Reinhart and Kenneth S. Rogoff, ‘Growth in a time of debt’. These researchers found that public debt levels in excess of 90% of a developed country’s GDP is inimical to growth and can in fact reverse growth. This study came at a time when a number of Eurozone countries were experiencing grievous economic downturns, especially Greece. These governments had, like other Eurozone governments, relief heavily on public debts to push their growth index, and at the same time being fully exposed to the fluidity of capital in a globalizing world. As capital flight occured in the wake of the financial crisis from the U.S-E.U trading bloc to other markets in Asia and elsewhere, those states with very high public debt levels in excess of the 90% marker could not finance their huge credit systems and without the timely intervention of the IMF and the E.U, they might have defaulted on their sovereign loans and declared bankruptcy. This would have further damaged the eurozone’s creditworthiness.
It has become clear that this kind of growth model popular in the U.S-E.U zone is not sustainable. As part of its recovery process, the eurozone states need to rebuild their credit and trade links. This would only happen easily if the rest of the world, particularly a group as influencial and strong as the G20 commit to the practice of open, free and fair trade, and shun protectionism. The G20 did just this, secondhro their antiprotectionism commitment, much to to the E.U’s delight.
The endorsement of the automatic exchange of tax information by the G20 was another high point for the recovering E.U. This process would reduce the level of tax avoidance by companies who move their capital and profits to tax havens, where they pay much lower taxes than they would have said in their home countries. The automatic exchange of tax information would force these companies to make their profit flows accessible for government scrutiny and effective taxation. Taxes still form the one of the most important and stable source of government funds. The implementation of this policy in the G20 would be a lot help for E.U government revenues.

*For Reinhart and Rogoff’s study, read their articles, ‘Too much debt means the economy can’t grow’ here: http://bloomberg.com/news/2011-07-14/too-much-debt-means-economy-can-t-grow-commentary-by-reinhart-and-rogoff.html

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About Johnson Boyede

Johnson Boyede, B.Sc in International Relations. He wrote 'Addressing terrorism in Nigeria and possible spill over into West Africa' for his Long Essay. He contributes scholarly writings to an open facebook group, 'League of Diplomats'. He agrees and runs with the opinion of Paul Romer that, "Knowledge is a non-rival nature and only partly excludable... In an open society, knowledge's non-rival nature means that a piece of new information can be used over and over again, by different people, in varying contexts and to make new things...one good piece of knowledge will live several lifetimes, undergo different iterations and be put to ever more unique purposes."
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