G7 Needs the Right Kind of Reset

When postponing this year’s Group of Seven (G7) summit to at least September, President Trump said on May 30 that the forum is “very outdated.” He spoke about a new “G10” or “G11,” incorporating other countries such as Australia, India, and South Korea—and Russia. His remarks have spawned new debate about the architecture of informal groupings of key countries designed to address pressing international economic and political challenges.

Trump is right that the G7 is outdated—but not because it excludes Russia. With global economic and political power more diffuse than it was when the forum was founded in the 1970s, the G7 can no longer serve as the “steering group” for the global economy. Even as a caucus of advanced democracies, the current G7 is flawed: internally riven, without the sense of transatlantic community that brought it together originally; and missing a number of other advanced democracies that have a constructive role to play in global governance.

The G7 was founded in response to the global economic shocks of a turbulent decade: the collapse of the Bretton Woods monetary system in 1971 and the first oil shock of 1974. Finance ministers and central bank governors from the largest advanced democracies—the United States, United Kingdom, Germany, France, and eventually Japan—had been meeting as the G5 since 1973. In 1975, French president Giscard d’Estaing invited leaders to a summit in Rambouillet, outside Paris. Italy and Canada later joined to form the G7.

Over time, the leaders’ agenda expanded beyond economics to global political challenges of the day. To encourage post-Soviet Russia’s integration into the global order, the seven original members agreed to add Russia to the leaders’ group in 1997, forming a G8. (The European Union also claimed additional seats for its dual presidents.) The agenda continued to grow with each summit, communiqués became lengthy laundry lists of hortatory declarations, and most summits were remembered mainly for their “family photos” set against impressive natural backdrops.

By contrast, G7 finance officials remained focused on economic and financial priorities: macroeconomic policy, management of the International Monetary Fund (IMF) and World Bank, debt strategies, and responses to difficult country-specific economic cases. The finance officials met throughout the year, while leaders met only once. The group was reasonably cohesive and personal relationships well developed.

When the global financial crisis hit in the fall of 2008, President George W. Bush—only months before leaving office—agreed to French president Nicolas Sarkozy’s demand for a global summit. Rather than convening an expanded G8, Bush opted to invite leaders of the G20, a broader grouping of finance officials that had been meeting since the late 1990s. The Bush administration realized that it needed a fully empowered China at the table, and it didn’t want to leave out key U.S. allies not in the G8.

By the time of the third G20 summit in Pittsburgh in September 2009, the Obama administration was ready to formally step away from the G8 as the top table of global economic governance. The Pittsburgh communiqué recognized the G20 as the “premier forum for international economic cooperation.”

Yet the G8 chugged along (although it reverted to the G7 format again in 2014 after Russia invaded Crimea and was disinvited from the group). The G7’s resilience was partly due to inertia; partly because the smaller grouping had a comparative advantage over the G20 in addressing international security and diplomatic issues; and partly because, even on economic issues, the G20’s momentum dissipated once the global economy had recovered from the worst of the financial crisis.

While the G7 surely no longer has the heft to steer the global economy, there are important elements of cohesion in the group. On the financial front, the seven countries still have a number of unique shared interests. They house the bulk of large globally systemic banks and critical financial markets. The dollar, euro, yen, and sterling are still key global currencies, dominating foreign exchange markets. The G7 has a paramount interest in combating money laundering and financial terrorism, and in digital tax issues.

Cohesion is more difficult at the leaders’ level, but even here there can be utility in convening a values-based group still made up of the world’s largest advanced democracies. The United States and its key allies can discuss cybersecurity, geopolitical hotspots, and other sensitive security and diplomatic issues without Russia and China—now formally declared “strategic competitors” by the Trump administration—in the room. To the extent the seven share common perspectives, they can also be an important force in shaping the G20 agenda.

Yet a lot has changed since 1975. The European Union—with more countries and economic heft—is less willing to automatically follow Washington’s lead in areas from foreign policy to domestic regulation. Moreover, the G7 in 2020 no longer represents all advanced democracies that have a constructive role to play in global governance. Countries such as Australia and South Korea have proven to be effective participants in the G20 and other international institutions and arguably deserve a seat at the table of “like-minded” countries.

But expanding the G7’s membership would not be without problems. First is the trade-off between size and effectiveness of any group. Moreover, adding more advanced democracies and not emerging countries would accentuate the group’s profile as a “rich-countries’ club.” In particular, excluding the world’s second-largest economy would confirm existing suspicions that the G7 is an “anti-China” grouping. While all advanced democracies have concerns about China’s behavior, most would be reluctant to be seen as ganging up on Beijing.

But in today’s complex, multipolar world, a “variable geometry” of informal groupings is inevitable. The global financial system simply can’t be managed without China’s involvement, hence the value of a G20. In theory, that broader grouping should take on other transnational issues from climate change to pandemics. But in practice the G20 has proved unwieldy and lacking the sense of common purpose that brought it together in the global financial crisis. This leaves room for informal smaller groupings of more like-minded countries that are committed and able to advance progress on important issues where they share interests.

Today’s G7 is too small and riven with transatlantic differences to play that role. Adding the leaders of a handful of “middle powers”—like Australia and South Korea—could give the G7 more legitimacy as a group of advanced democracies and help make progress on important transnational issues. Trump’s idea of adding Russia is clearly mischievous and would doom the G7 to dysfunction and irrelevance, but he is not wrong that the group could use a healthy reset.

Mark Sobel is U.S. chair of the Official Monetary and Financial Institutions Forum (OMFIF) and senior adviser (non-resident) with the Economics Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Matthew P. Goodman is senior vice president for economics and holds the Simon Chair in Political Economy at CSIS.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Mark Sobel
Senior Adviser (Non-resident), Economics Program