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Prospects for Italy's G7 Taormina Summit 2017
John Kirton
October 7, 2016
The 43rd annual Group of Seven (G7) summit, taking place in Taormina in Sicily, Italy, on May 26-27, 2017, will be an unusually important and perhaps historic event. Some might be tempted to see it merely as a second-tier summit sideshow, in a world where the big issues and decisions will be decided by the newer, bigger G20 summit scheduled for Hamburg, Germany, on July 7-8, 2017. Yet at Italy's G7 summit, the key person, participants, time, place, purpose and priorities mean that it will act on the key issues that cannot be left to the G20 summit a long month and a half later and a long way to the north. Indeed, the success of the subsequent G20 Hamburg Summit substantially depends on how the earlier G7 Taormina Summit sets up and supports action on their shared agenda and acts on the pressing political-security and related issues with belong to it alone.
The key person hosting and chairing the G7 summit will be either the current Italian prime minister Matteo Renzi or a left- or right-wing rival should Renzi step down if he loses the landmark referendum on constitutional change he called for December 4, 2016. The first outcome would see the G7 summit hosted, unusually of late, by a relatively new, young leader, following Japan's Shinzo Abe in 2016 and Germany's Angela Merkel in 2015. To the G7 and the global stage, Renzi — who turns 42 in January 2017 and was first elected in 2014 — would bring a surge of confidence from his Italian referendum victory, a transformation in Italy's post–World War Two political system and, potentially, far-reaching political, social and economic progress. If Italy sends a different leader, the other G7 leaders would still need to discover that newcomer's new course for Italy and how to work with him or her.
The key participants start with the new leader from the United States. The Taormina Summit will be the first outing on the full world stage for the new president who will be elected on November 8, 2016. New leadership could also come from several other sources. France will hold its presidential elections on April 23 for the first round and May 7 for the second. The United Kingdom could have Prime Minister Theresa May, who arrived in August 2016, seek an electoral mandate of her own. Germany could see Chancellor Angela Merkel, the veteran of 11 consecutive G7 summits, choose not to run again in her country's elections due in the fall. Donald Tusk, president of the European Council, may see a successor coming in his place. Japan will offer more assured leadership from the 62-year-old Shinzo Abe who hosted the last G7 summit at Ise-Shima on May 26-27, 2016. But only Canada's 45-year-old prime minister Justin Trudeau, attending his second G7 summit and preparing to host his first the following year, will offer confident youthful leadership for the longer term, as Canada celebrates its sesquicentennial year in 2017. The European Union will send Jean-Claude Junker, President of the European Commission, who will be preoccupied by the urgent, even existential question of whether the EU will unify or unravel after the UK leaves.
The EU's future stands as the most urgent and historic challenge that Italy's G7 will confront. In sharp contrast to the G20, four of the seven G7 members come from Europe — Germany, France, the UK and Italy itself. The G7's one international organization as a member is the EU, which hosted its first G7 summit in Brussels in 2014 and makes the G7 even more of a European-dominated and thus preoccupied club.
The timing of the Taormina Summit will heighten its importance. When Italy formally assumes the G7 presidency on January 1, 2017, it, the G7 partners and the entire global community will face several key issues that cannot be put off. The opening trilogy starts with the U.S. president who will take office on January 20, the results of the Italian referendum, and the ensuing constitutional and broader EU reform program that will begin in the new year. It culminates with the start of formal negotiations between the UK and EU on Britain's Brexit, which May has promised by March 30, 2017. There will also be the UK and EU negotiations of new trade deals, notably the Trans-Atlantic Trade and Investment Partnership (TTIP) with the United States and the ratification of already agreed ones, notably the Canada-EU Comprehensive Economic and Trade Agreement (CETA). More broadly, Italy's G7 presidency begins the day after the December 31 deadline for its oldest and third largest bank, Monte dei Paschi di Siena, to raise the €5 billion in additional capital needed to stave off a collapse that could spread to Europe's bigger, equally embattled banks in Germany and beyond, including a nearby Greece struggling to cope with its massive deficit and debt. The summit in May comes just as the European summer starts with warm weather that will spark a surge in immigration from Africa and beyond. And 2017 is when the last US troops are due to leave Afghanistan, which is America's and the G7's longest war.
Sicily's Taormina was consciously chosen for the site of the summit, rather than the initially intended Florence as Renzi's luxurious home town, to spotlight the key issues facing Italy, the G7 and the world. The first is the urgent need for this front-line summit to deal with migrants flooding into Europe from across the Mediterranean. This flood helped British voters decide to leave the EU and is dividing Europe and even Germany from the inside. The second is the threat to Italian banks amid calls for the EU to create a banking union. The third issue is Greece's cancerous deficit and debts that Germany and Europe are reluctant to bail out. At stake at this G7 summit in Italy, unlike last year's in distant Asia, is the future and fate of the entire EU, of which Italy has long been the most loyal pillar since the Treaty of Rome in 1957.
The location of the summit further highlights several other central issues that the G7 will prominently address. First come corruption, tax evasion and money laundering, at a summit where Sicily — the media will note — is the historic home of the Mafia. Second is energy, which arrives in Europe from the Middle East and Africa from across the Mediterranean, and which inspired Italy to host the first recent G7 energy ministers' meeting in 2014. Third is implementation of the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs), with Africa and Afghanistan on the front lines. Fourth is a broad range of political-security challenges, from humanitarian crises and war in Ukraine, Syria, Iraq, nearby Libya, the Middle East and North Africa, through Nigeria, Mali, the Democratic Republic of Congo and the Central African Republic in Africa's sub-Saharan south, to nuclear issues in Iran and North Korea. It was from Italian airbases that the G7-led wars to liberate Libya in 2011 and Kosovo in 1999 were launched. And the status of neighbouring Ukraine, with Italy as a founding ally in the North Atlantic Treaty Organization (NATO), will remind all of the need to deal with Russia, throughout Europe, the Middle East and Asia and within Russia itself.
The purpose of the G7 will inspire the unified approach that its members will likely take to address these challenges. Unlike the G20's economic focus, the distinctive foundational mission of the G7 is pre-eminently political — to globally promote the values of open democracy, individual liberty and social advance. These values are now under assault in Russia, which was suspended from its G8 membership in 2014, and in many places around the world — even, some fear, in Europe itself. The new threat comes everywhere from populism, protectionism and nationalism fuelled by a sense of economic, social and identity deprivation from the working classes and the poor. While G20 summits note "geopolitical risks" in passing, only the G7 summit comprehensively and coherently connects and governs the economic, social and political-security dynamics of an intensely interconnected globalized world.
The priority agenda of the Taormina Summit underscores the global prominence of this gathering. Indeed, at their last summit in May 2016, G7 leaders agreed collectively that, in the lead-up to and at the Italian-hosted summit, they would address the critical issues of climate change, energy, tax and transparency, trade, health, African development, Syria and the Middle East Peace Process. Within this comprehensive, interconnected agenda, several particular priorities have pride of place.
The first is migration and refugees. The G7 summit has long dealt with this issue, which the G20 took up only in 2015 and largely overlooked in 2016. It will be the centrepiece subject at Taormina, in its humanitarian, economic, demographic, health, social and security dimensions. It will be the first priority for Italy and the EU as a whole, although the United States will have to deal with the aftermath of a divisive election campaign highlighting immigration from Mexico and the Muslim world. A closed Japan and an open Canada arguing it is a global issue rather than a European one will form the poles of the debate. A once welcoming but now wary Europe will stand in the troubled middle, divided about how many migrants to accept, and how to distribute them among its member countries once they arrive.
The second priority is health. This is a subject that G7 summits have addressed since 1980, with the G20 joining in only in the last few years. Taormina's health agenda will focus on the global health architecture, antimicrobial resistance (AMR) and universal health care (UHC), using the 2030 Agenda and the SDGs as a template for how to act. It will follow up on the agreed, future-oriented agenda of the G7 health ministers' meeting in Kobe, Japan, in September 2016, and the G20's first health ministers meeting at the end of May 2017. It will probably also deal with infectious diseases, such as Zika, borne by mosquitos from across the Mediterranean, lured north into Italy and Europe by the warmer weather brought by climate change.
The third priority is Africa — another issue the G7 summit has addressed directly almost since its start but that the G20 took up only recently. At Japan's Ise-Shima Summit in May 2016, Renzi said that in 2017 at his summit he would focus on North Africa and how the G7 would deal with the failed states there, with Libya as the standout case.
The fourth priority is energy. Italy hosted the first G7 energy ministerial arising in the wake of Russia's suspension from the G8 after Russia's invasion and annexation of Crimea. The most recent one, in May 2016 in Japan, offered a wide range of issues to follow up. The G7 summit later that month highlighted the ongoing struggle to end inefficient fossil fuel subsidies by 2025.
Beyond these top priorities lie the G7's broad, built in agenda where the G7 stands at the centre of the needed global response.
Global economic growth, with macroeconomic policy management at its core, is a basic G20 topic where the G7 summit still plays an essential and often central role. In responding to a financial crisis, when immediate emergency injections of liquidity are needed to save a frozen financial system, as they were on October 6, 2008, it is largely G7 central banks that instantly come together to meet the need. Monetary policy has led as a badly needed source of stimulus for a sluggish economy over the past several years. It has come from the low, long interest rates and unconventional monetary policy that have flowed overwhelmingly from the G7 central banks of the United States, Japan, the European Union and the United Kingdom. As attention now turns to rely more on fiscal policy, it is the G7 governments of Germany and Canada that are being asked to lead. At the same time, record high and rising global debt is concentrated in the G7 and other rich countries. The continuing debt crisis in Greece, an EU member and thus indirectly in the G7, will be dealt with first by the EU, then by the G7-controlled International Monetary Fund (IMF) and thus by leaders at the G7 summit should the need arise again to combat a sovereign debt crisis. And the growing demands for structural reform still focus on those needed in the G7 members, including Italy and the EU. The IMF's most recent forecast downgraded global growth yet again, due above all to the poor performance of the G7 members, and despite the better performance of the emerging and developing economies elsewhere. The G7 and its influential Business Seven (B7) engagement group will therefore play a key role in stimulating global growth in 2017. In short, on global economic growth and on macroeconomic policy, G7 members and thus the G7 summit are still in the lead.
The G7 is in the lead on microeconomic policy, too — notably on jobs, social protection, pensions and the educational skills needed for the expanding digital economy. Youth unemployment is a particular concern in Italy, France and other parts of Europe, as is the G7's desire to reach those not in employment, education, or training (NEET). Even in countries with successful apprenticeships and full youth unemployment, as in Germany, the burden of pensions and other social protection for aging populations is a major concern.
Financial regulation and supervision is also an area where the G7 will have a key role. Promoting financial stability is indeed a foundational mission of the G20 and a task for which its Financial Stability Board, operating below the leaders' level, plays the key role. However, G7 members still contain a strong majority of the world's financial centres and capacity. Moreover, when the 2008 global financial crisis erupted, in the G7 members of the United States and United Kingdom and then threatened to return in Europe in 2010, the G7 was on the frontlines of the response. In 2017, the central threat will again arise within the G7. It will come first in Italy with the rescue of Monte dei Paschi di Siena, then from Germany's Deutsche Bank as its only global bank and then from several other weak banks in Europe, as the EU struggles to create a banking union and the rules for member governments to bail out their troubled banks. On the basic components of banking capital, liquidity and leverage, and a long list of related financial regulatory issues, the G7 summit will need to act in 2017 before the G20 summit does. Tax and transparency will also be a central concern, as many of the world's tax havens, transfer-pricing schemes and those using them lie within G7 members.
Trade is also centrally a G7 subject in 2017. It begins with the ongoing uncertainty from, and the start before the end of march of the formal negotiations for Britain's withdrawal from the EU, the largest free trade area and integrated marketplace in the world. It continues with the negotiations of both Britain, the EU and its members such as Italy for new trade deals with each other and with third parties, starting with their historic G7 partners of Canada, the United States and Japan. With Canada, the emphasis will be on the final ratification or start of implementation of CETA and the creation of a similar free trade agreement with a UK leaving the EU. The Canadian deals are important for their economic weight and their strong signal that the shrunken post-Brexit EU is still committed to open trade and a credible partner for negotiating and implementing such deals. It is also significant as a precursor to the much larger TTIP between the United States and European Union, with negotiations that will reach a critical peak under the new U.S. administration in the first five months of 2017. Also peaking then will be the U.S.-led negotiations for a free trade Trans-Pacific Partnership (TPP), where G7 partners Japan and Canada are the key participants in this 12-country club. At the core of CETA, TTIP and TPP is the concern of anti-globalization advocates over the provisions for investor-state dispute settlement, the outcome of which has important implications for the legal community involved in international investment and trade.
The more routine disagreements over trade subsidies will also shift in 2017 from those for steel, where the G20 and China lead, to those for passenger aircraft within the G7, with the recent ruling by the World Trade Organization and ongoing legal action there between Boeing from the United States and Airbus from Europe, with Bombardier from Canada and firms from Japan looking closely on. Most broadly, the new U.S. president and administration will both symbolize and steer the future of the global trade, investment and economic system, in the direction of closure or openness, and with new principles and protections to calm those concerned about globalization. They are of political consequence primarily among the G7 members. It is thus Italy's 2017 G7 summit that will first have to produce an effective collective response to their concerns.
Investment will be a key subject for the G7 well beyond the issue of investor-state dispute settlement. It will arise over the shifting dynamics of international mergers and acquisitions and who and whose rules should regulate them. It will extend to Europe's need for investment, especially in infrastructure, with national governments seeking to lure inward investment and the EU doing so with its Juncker Plan. Beyond lie the opportunities for Italy, Europe and other G7 members for investing across the Mediterranean, in North Africa and the Middle East, in energy and infrastructure, in projects such as solar power in Morocco, gas fields next to Israel and new connectors to bring such clean power into Europe. It was thus understandable that Renzi announced on October 6, 2016, that the G7 industry ministers will meet in Turin in 2017, as the first of the 2017 G7 ministerial meetings that he unveiled.
Food and agriculture will also be a central subject for Italy's G7 summit in 2017. Home-grown food and wine, protected by legally entrenched geographic appellations, are an enduring source of pride, identity and economic reward for Italians. Rome is home to the world's three major multilateral UN organizations in the field: the Food and Agriculture Organization, the International Fund for Agricultural Development and the World Food Programme. The Taormina Summit will seek to celebrate and build on the centrepiece achievement of the last G7 summit Italy hosted in 2009 — the L'Aquila Food Security Initiative, for which several billion dollars in new money was mobilized. In doing so it will build on the bold promise made by the G7 at the 2015 Elmau Summit in Germany hosted by Renzi's European colleague Angela Merkel, to list 600 million people out of hunger by 2030. The 2017 will act swiftly to meet this target, spurred by the need for food relief in war-torn Middle East and African states, and the famines due to drought and climate change in Ethiopia and across Africa further south.
Sustainable development more broadly will be a major G7 summit subject in 2017. G7 members will be expected to lead in implementing the 2030 Agenda, not only by providing concessional financial assistance to poorer countries outside but also by embedding the universal SDGs in their own national policies and plans. And G7 members will again be required to raise the bulk of the many billions needed to replenish the International Development Association for the next three years, as the World Bank Group's granting body for the world's poorest states. African development will be a G7 priority, as the leaders promised at their summit in 2016. The Roman Catholic church and its pope, headquartered in Rome, will ensure that G7 leaders keep the faith with the most dispossessed countries and people in the world.
Climate change will be at the centre of the effort to implement the SDGs and thus of the G7 summit too. With the landmark Paris Agreement to control climate change entering formal legal force on November 4, 2016, global attention in the first half of 2017 will focus on how to implement and improve the deal. The focus will be first on the new U.S. president and congress, and second on the historic G7 climate pioneers of Germany, Canada and Japan.
Corruption will, as always, be a concern. It has long flourished within G7 members, such as Italy and Japan, been part of the G7's war against drugs and people smuggling and money laundering, and is now part of the illegal behaviour of G7 financial and automotive firms.
Terrorism will be top of mind for the leaders at Taormina. It is a topic the G7 has addressed since 1978 but that the G20 has taken up only in the last two years. It will be fuelled by the continuing surge of deadly and deterred terrorist attacks within the G7, notably in Europe and the United States.
Security in its hard form is the subject on which the G7 has the monopoly and which the G20 almost always neglects. Taormina will focus first on Russia, its relationship with the G7, its military moves in the wars next door in Syria and Ukraine, along a rearming NATO's long European frontier and the date of democracy and human rights within Russia itself. It will address the ongoing wars in Syria, Iraq, Libya, sub-Saharan Africa and a fragile Afghanistan, from which the last U.S. troops are due to leave in 2017 and into which the Taliban threatens to return. The Middle East Peace Process and nuclear issues in North Korea and Iran will again be on the leaders' list. It will again deal with China, its expansionist moves in the South and East China Seas, and the broader question of how to deal in a united G7 way with a rising, economically enticing China still struggling to recognize human rights, on issues such as the Asian Infrastructure Investment Bank and granting China the status of a normal trade partner. Cyber security and cyber espionage will be on the G7's agenda too.
Bringing these priorities together are several overarching themes that bring together many of the individual issues identified above.
The first theme is managing the Mediterranean and Africa and the Middle East on its other shores. This begins with migration, the ocean environment and energy transit routes, and the infrastructure, industry and investment potential, including tourism and the deadly conflicts on those shores and beyond, including Turkey as well as Saudi Arabia and the United Arab Emirates in the Persian Gulf.
The second theme is Europe's future, as it defines itself after the migration and Brexit shock and rapidly emerging reality, banking bailouts and government debt crises as in Greece. It extends to hard military security issues, such a creating a European civilian and military headquarters to deal with crises in Africa, which NATO seems reluctant to address.
The third and much more optimistic theme is investing in an innovative Italy, as it embarks on its constitutional reform and the political, economic and social policy transformations that will come in its wake. This could unleash a new era of Italian innovation, from food, fashion, industrial design and automobiles to music, art, tourism and much else. The year 2017 will be the time and the G7 the occasion to tell the story of the true and new Italy to the world.
[back to top]Passages from the 2016 G7 Ise-Shima Leaders' Declaration on the agenda for 2017:
"Climate: They G7, continuing to take a leadership role, commits to taking the necessary steps to secure ratification, acceptance or approval of the Paris Agreement as soon as possible, and calls on all Parties do to so striving for a goal of entry into force in 2016."
"To ensure widespread implementation of the BEPS [base erosion and profit shirting] package, we encourage all relevant and interested countries and jurisdictions to commit to implement the BEPS package and join the new inclusive framework, noting that the first meeting will be held in Kyoto in June."
"In this respect, we look forward to the initial proposals of the Financial Action Task Force and the Global Forum on Transparency and Exchange of Information for Tax Purposes on ways to improve the implementation of the international standards, including on the availability of beneficial ownership information and its international exchange, to be presented by the October meeting of G20 Finance Ministers and Central Bank Governors."
"We welcome the successful conclusion of the Nairobi Ministerial Conference, and in order to solidify our achieved outcomes in the recent Ministerial Conferences, call for a swift entry into force of the Trade Facilitation Agreement (TFA) by the end of 2016 and its full implementation, including through a coordinated approach to Aid for Trade, and the implementation of the Information Technology Agreement (ITA) expansion as agreed."
"We aim to conclude an ambitious Environmental Goods Agreement (EGA) that eliminates tariffs on a broad range of environmental products by the G20 Summit in September in Hangzhou, having in mind a future oriented agreement."
"We also look forward to concluding negotiations on an ambitious, balanced and mutually beneficial Trade in Services Agreement (TiSA) by the end of 2016. At the same time, we promote forward-looking post-Nairobi discussions with our partners in various fora, addressing outstanding and new issues as well as new formats of negotiations."
"We welcome the strong commitment of Japan and the EU to reach agreement in principle on a comprehensive, high-level and balanced Japan-EU EPA [economic partnership agreement] as early as possible in 2016."
"We are committed to applying the necessary political will to reach a TTIP [Trans-Atlantic Trade and Investment Partnership] agreement as early as this year, provided that it is ambitious, comprehensive, high standard and mutually beneficial, with a view to harnessing the full potential of the transatlantic economy as soon as possible."
"We welcome the shared commitment of Canada and the EU to sign CETA [Canada-European Union Trade Agreement] this year. We encourage Canada and the EU to bring CETA into force as early as possible."
"We also instruct our Health Ministers to further elaborate necessary actions on these areas at their Meeting in Kobe in September."
"We invite the WHO [World Health Organization] and OCHA [Office for the Coordination of Humanitarian Affairs] under the UN Secretary General (UNSG) to review, strengthen and formalize coordination arrangement among the WHO, the UN and other relevant partners, and to update the G7 Health Ministers on the progress in September."
"Against those backdrops, we are committed to support the 2016 High-Level Meeting on AMR [antimicrobial resistance] at the UN General Assembly that promotes effective implementation of the Global Action Plan through multi-sectoral global, regional, national, and community collaborative efforts, and recognize existing initiatives, such as those highlighted in the EU Ministerial One Health Conference on AMR, the Tokyo Meeting of Health Ministers on AMR in Asia, and the GHSA [Global Health Security Agenda] AMR Action Package."
"We welcome the ISSG's [International Syria Support Group's] clear reiteration of the objective that, by the target date of August 1 2016 as established by UN Security Council resolution 2254, the parties reach agreement on a framework for a genuine political transition, which would include a broad, inclusive, non-sectarian transitional governing body with full executive powers."
"We welcome the ISSG's commitment that, starting June 1 2016, if the UN is denied humanitarian access to any of the designated besieged areas, the World Food Program should immediately carry out a program of air bridges and air drops for all areas in need."
"We welcome the upcoming ministerial conference in Paris."
"The G7, continuing to take a leadership role, commits to taking the necessary steps to secure ratification, acceptance or approval of the agreement as soon as possible and calls on all Parties to do so striving for a goal of entry into force in 2016."
"We encourage all world leaders to join us in supporting a decision later this year."
"We remain committed to the elimination of inefficient fossil fuel subsidies and encourage all countries to do so by 2025."
"We affirm that TICAD VI [4th Tokyo International Conference on African Development] to be held on 27 and 28 August, 2016 in Nairobi, Kenya, for the first time in Africa comes at a critical juncture of translating the global vision into actions for Africa."
"We look forward to meeting under the Presidency of Italy in 2017."
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