Russia’s invasion of Ukraine compels central banks and G7 to take action
Ukraine conflict cripples G20 but unifies G7
Anti-authoritarianism gives G7 renewed purpose
Russia’s invasion of Ukraine crystallises key shifts underway in global governance. Among others, it will cripple the G20 and elevate the G7.
The G20 leaders process was born in a unique moment in history, the foundations for which have now collapsed. Just as G7 leaders started meeting at a time of global economic upheaval with the collapse of the Bretton Woods system in the 1970s, the first G20 leaders’ summit in November 2008 took place in Washington amid a changing global economic landscape as the world came together to fight the 2008 financial crisis. The G7 recognised their economic clout was no longer enough without China.
Non-members asked why they should help the G7 when they hadn’t caused the crisis and had long been excluded from key pillars of global governance. The G7 took this message on board. By the April 2009 G20 summit, the G7 had mobilised substantial resources for emerging markets and low-income countries and the non-G7 members of the G20 joined the Financial Stability Board.
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-Central banks must switch to a war footing
Financial markets haven’t grasped fundamental shift
The world has changed over the past two weeks and central banks’ policy cannot stay the same, especially in Europe.
War brings a policy conundrum for global leaders, with potentially diverse geopolitical and economic outcomes. Once the genie of military action is out of the bottle, it is hugely challenging to put it back. Even the best possible development in the Ukrainian conflict would be an armed truce, not true peace. It would involve an immediate ceasefire, perhaps with some territorial concessions to Russia and a neutral Ukraine before a gradual de-escalation. It would allow some normalisation only over time.
However, it would not be business as usual for central banks. Sanctions and disruptions to the global supply chain are here to stay. Central banks will lack clarity on the effects of these economic phenomena. The risk of a long-lasting impact on supply with a persistent adverse consequence on economic growth cannot be easily dismissed.
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Πηγή: omfif.org
