The Value of Group of Seven (G7)

TABLE OF CONTENTS

I. INTRODUCTION 3

II. HOW G7 CAME TO BE 4

A. ORIGINS AND DEVELOPMENT
B. PURPOSE OF CREATION

III. PAST AND PRESENT PROBLEMS AND IMPORTANCE OF THE G7 6

IV. CRITICISMS TO G7 9

V. CONCLUSION 11

VI. BIBLIOGRAPHY 12

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 I. Introduction to the Group of Seven

The world, for the most part, has been peacefully conducting its business and trade
between different nations back to the beginning of the 1900s. Until the US Great Depression
came and then the two World Wars. Majority of the world’s states were devastated and
struggling to rebuild. Yet some of them manage to grow their countries and restart their
economies.

In terms of trade, it can be classified by how it was conducted. The most preferred
ones by the beginning of the 20th century is the system of colony. Wherein a sovereign state
does its business with their subjects who buys their products and the subjects who trades their
raw materials. Some self-governing states also trades with another state which is called
bilateral trade.

Then, towards the turn of the century trades become much more complex than the
usual food-related production. Through the development of technology boosted
interdependence of resources that is required to manufacture the products that we enjoy
today.

That’s mostly was just the economic part, yet it has created a better world to live in. It’s
what we call multilateralism. Cooperation is already in existence to most neighboring states
starting from the 1900s. The turn of the new millennia made it much more significant. And it
was not just in trade but also in politics.

One example of a modern instance multilateralism in politics traces back in Europe

towards the end of the Napoleonic Wars where the great powers met to redraw the map of
Europe at the Congress of Vienna. The Concert of Europe, as it become known, was a group
of great and lesser powers that would meet to resolve issues peacefully. Conferences such
as the Conference of Berlin in 1884 helped reduce power conflicts during this period, and the
19th century was one of Europe’s most peaceful.

And jumping to the much modern example is the now Group of Seven (G7). It was an
informal bloc of industrialized democracies that meets annually to discuss issues such as
global economic governance, international security and energy policy. This organization is
important because it is a forum of the world's seven most industrialized economies. The G-6
was formed in 1975 and consisted of France, Germany, Italy, Japan, the United States and
the United Kingdom; Canada was invited to join the group in 1976 creating the G7. The group
is composed of government leaders from the seven nations who meet to discuss international
economic and monetary issues.

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 II. HOW G7 CAME TO BE

The concept of a forum for the world's major industrialized countries emerged before
the 1973 oil crisis. It started as somewhat informal gathering of the finance ministers from the
United States, West Germany, France, and the United Kingdom. As the energy crisis of that
decade was spooling up, U.S. Treasury Secretary George Shultz decided it would be wise to
coordinate macroeconomic initiatives with other larger players on the world stage.

On Sunday, 25 March 1973, the U.S. Secretary of the Treasury, George Shultz,
convened an informal gathering of finance ministers from West Germany Helmut Schmidt,
France Valéry Giscard d'Estaing, and the United Kingdom Anthony Barber before an
upcoming meeting in Washington, D.C. When running the idea past President Nixon, he noted
that he would be out of town and offered use of the White House. The meeting was
subsequently held in the library on the ground floor. Taking their name from the setting, this
original group of four became known as the "Library Group."

Subsequently, nations such as Japan, Italy, and Canada were brought into the group.
When the European Union became a prominent coordinator for the European common market
in the late 70s, the president of the European Commission was also invited to participate. And
in 1998, the recently devolved Russia was invited to the table (somewhat briefly, as it turned
out), although mostly in a political sense since the country continued to lag the other
participants economically.

Russia belonged to the forum from 1998 through 2014, when the block was known as
the Group of Eight (G8), but was suspended following its annexation of Crimea. The G7’s
future has been challenged by continued tensions with Russia, disagreements over trade and
climate policies, and the larger Group of Twenty’s rise as an alternative forum. Meanwhile,
U.S. President Donald J. Trump has deepened divisions within the bloc, raising questions over
cooperation on various policies.

The initial composition of the group clearly represented the dominant economic powers
of the day, and these countries shared the additional characteristics of being democratic,
largely “Atlantic-oriented” and militarily allied to the United States. The “club” was relatively
small, and the heads of government knew each other reasonably well. The opportunity to talk
informally (the use of first names being common) and directly to counterparts was viewed as
invaluable, as was the political profile afforded by the regular summits. In retrospect, the
addition of Russia now seems anomalous, but at the time, efforts were being made to
encourage Russia to become a free market liberal democracy with a commitment to the
international processes and norms that the G7 considered acceptable. This attempt to secure
good behavior through co-option has been only a partial success.

The G7 meets on an annual basis in a rotating member country. France hosted the
first meeting in 1975 when French President Valéry Giscard d’Estaing invited the leaders of
the Federal Republic of Germany, the United Kingdom, Italy, the United States and Japan to
Rambouillet to discuss the crisis triggered by the oil shock of 1973 to 1974. This meeting was
among the original G-6 nations. The first meeting with all G7 nations was held in Puerto Rico
in 1976 and was hosted by the United States.

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 Since 1975, the group meets annually on summit site to discuss economic policies;
since 1987, the G7 Finance Ministers have met at least semi-annually, up to 4 times a year at
stand-alone meetings. The major summit involving world leaders is still held annually at a site
that rotates through the member nations. The group finance ministers, however, may meet
more frequently throughout the year depending on the subjects on their plate and global
economic conditions.

The Presidency of the G7 is held by each of the member countries in turn. Although
the European Union attends the G7, it does not chair or host the meeting.

The G7's major role is to discuss and resolve global problems. The seven nations
represent approximately 50 percent of the global economy. The G7 has been particularly vocal
about the need to prevent the overall global economy from entering a recession. The group
has discussed financial crises, monetary systems and major world crises such as oil
shortages. Finance ministers from the member countries meet annually or more frequently to
find ways to improve the economies of member countries and the world.

Today, the G7 are reckoned as the seven wealthiest and most advanced nations in
the world… advanced nations because China, which holds the second largest net worth in the
world, nonetheless has a low net worth per individual and an economy that has not yet fully
modernized. Between them, the G7 fill out numerous global top lists: Leading export countries,
Largest gold reserves, Largest nuclear energy producers, Top contributors to the UN budget.

With that sort of economic and political heft, the Group of Seven is uniquely positioned
to make things happen around the world, both in and outside their own countries, and both
economically and politically. Meeting to decide what those things should be is the primary
purpose of the summits today.

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 III. PAST AND PRESENT PROBLEMS AND IMPORTANCE OF THE G7

Up through the mid-1980s, this all happened somewhat discretely and informally. In
1985, however, major meddling in international currency markets culminating in the Plaza
Accord made it clear that the group needed to be more forthright in briefing other worldwide
economic interests with respect to their decisions. Meetings have subsequently been
announced and usually some sense of the agenda floated to prepare global markets for
possible changes in macroeconomic policy.

Because economic power has also found itself tightly coupled with military and political
power, the G7 forum has also become a place for prominent international crises or disputes
to be discussed or resolved. In 2013, world leaders tackled the developing Syrian crisis
(unsuccessfully), while more recent meetings have covered topics like North Korean nuclear
armament, environmental issues, Brexit implications, and the rise and fall of ISIS.

Inevitably, the summits have also drawn fire, both from nations that are not commonly
invited and from the public at large. Whether it’s the perception of conspiracy or the blatant
exercise of its power that people take exception to, G7 meetings have been met with large-
scale demonstrations at virtually every summit held since 2000. In fact, in many cases, the
demonstrations and the crowd control measures used by the host country become the focus
of press coverage more so than the points discussed in the meetings themselves.

Part of the problem that the G7 has been facing is when standoff between Russia and
Ukraine has persisted. As conflict between Ukraine’s military and Russia-backed rebel forces
in eastern Ukraine intensified in 2014, the United States and European Union ratcheted up
sanctions in an effort to further isolate Russia. While the G7’s European members did not
initially join the United States in sanctioning several prominent Russian businessmen, the
political calculus shifted in July 2014, when Malaysia Airlines Flight MH17, en route from
Amsterdam to Kuala Lumpur, crashed in eastern Ukraine, apparently hit by antiaircraft
missiles fired by the rebels. The deaths of all 298 passengers, mostly Europeans, hardened
the EU’s position against Russia, and on July 30 the G7 announced an expanded set of
sanctions.

Regardless of the problems that the group faced over the decades, the G7 plays an
important role for finance ministers. The meetings that they are doing together with the central
bank governors several times a year just to discuss issues relating to fiscal, monetary and
economic policies is a way of providing attention to the economical matter. It is safe to say
that it is better to talk about the issue and look for a resolution together. Although the G7 does
not adopt any legally binding decisions, it is able to react swiftly and efficiently in crisis
situations thanks in particular to its long-standing tradition of close cooperation. This was
demonstrated during the G7 finance summit in Washington in October 2008. In the aftermath
of the bankruptcy of the American bank Lehman Brothers, it was unanimously agreed that
comprehensive coordinated measures would be required in order to prevent international
financial markets from collapsing. This was achieved through the quick and efficient adoption
of emergency measures and by convening the first G20 summit of heads of state and
government in 2008, where agreement was reached on broad regulation of financial markets.
 The G20 includes, beyond the G7 members, the most important emerging economies
such as Brazil, China, India and Russia, whose global economic importance has increased
significantly in recent years. The G7 acts as an important catalyst within the G20, developing
potential solutions in advance of meetings. Neither the G7 nor the G20 claim to be international
institutions on a par with, for example, the United Nations. Rather, these groups see
themselves as informal platforms for cooperation. Since the groups have no administrative
structures of their own, the rotating annual presidency plays an important role.

The country that holds the annual presidency organizes that year’s summit and sets
the agenda. At the moment that the country who organizes the summit can raise the agenda
that could be advantageous on their side. This is the notable opportunities that summits
provide for leaders to get to know one another well and understand one another’s domestic
economic and political positions and constraints has been a useful role of the G7 from the
beginning.

The G7 members bear a special responsibility for the world economy. Together, the
economies of these countries produce just under half of global economic output. Within the
G7, Germany is promoting structural reforms to improve the conditions for investment and
jobs. In the current situation, investments play a key role in strengthening the global economic
upturn. Therefore, the G7 will commit itself to improving the environment for private
investments. Sound public finances are essential for this because they are the foundation for
confidence and sustainable growth.

The recent financial crisis demonstrated that comprehensive regulation of financial

markets is necessary. In response to the lessons learned from the financial and banking crisis,
numerous rules have been agreed at the international level, particularly within the G20. These
rules now need to be implemented consistently, and the G7 countries have a special obligation
to do so. A great deal of work remains to be done in certain areas, such as in the supervision
of shadow banking. Only when this work has been completed will there be better protection
against future financial crises.

Along with spending discipline, taxes form the basis of sound public finances. The
German G7 Presidency is making the case for internationally agreed tax rules aimed at
preventing large corporations from avoiding appropriate taxation by reducing or shifting their
profits. In addition, the exchange of tax information across international borders needs to
become more effective in order to successfully combat tax evasion. To maintain people’s trust
in our tax system, it is essential for everyone to contribute a fair share towards the financing
of public budgets. The G7 countries have an important duty as role models and leaders when
it comes to international cooperation in the area of taxation.

Based on a study by Enea, Palasca & Tiganas (2015), they investigated the role played
by the G7 in the international economy, portrayed as the main vector of the globalization
process. They highlighted the fact the countries that form this exclusive group represent the
core of global business cycle, being considered the economies that dictate the general trend
in the international economy.

The main purpose of the research was to assess the business cycle synchronization
patterns inside the G7, in order to better grasp the transformations which can occur between
periods of economic expansion or recession. What is more, the study has emphasized the
role of the commercial channel within the business cycle transmission mechanism.

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 The study has showed that, in general, the G7 group cannot be considered
homogenous. One of the more important findings that emerge from the research is fact that
the G7 encapsulates three macro business cycles, namely the Euro-zone cycle (Germany,
France and Italy), the English-speaking cycle (U.S.A., Canada and the United Kingdom) and
the Asian cycle (Japan and China).

The second major finding is that trade has been found to be an important business
cycle transmission channel, especially in Europe, where we can highlight the cases of
Germany and Italy, previously discussed, and also for the US in its relationship with Canada.
It can also be said that during times of recession, the G7 countries have displayed similar
synchronization patterns.

The point of discussing the study is that, this is an actual proof that the member states
should be aware of the economic progress of the other members in G7. For some reasons,
during periods of economic expansion, each can country can rely on its own national attributes
to develop and increase the degree of synchronization. Also the study has underlined the fact
that the occurrence of a recession in one country can represent a warning signal for the other,
in order to develop and implement anti-recession policies. These policies can become more
effective if they take into consideration the transmission lag.

The preset study has proved the unquestionable existence of a Euro-zone cycle,
centered in Germany, France and Italy, and has highlighted Japan’s unique position and
behavior within G7. In addition, it has restated the importance of the trade channel as a
transmission vector of business cycle synchronization. It mainly shows that the forum is
another way for them to reach the signal.

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 IV – CRITICISMS TO G7

As the most important informal gathering of the leading Western states the G7 was subject to
massive criticism from the outset, above all in relation to its lack of legitimacy,
representativeness, and transparency (Sohn 2005). One unambiguous motive for its
foundation was the circumvention of the UN in which the South, by means of its overwhelming
voting majority (one country, one vote) could forthrightly express its demand for a fairer global
economic order. The informal structure and extensive correspondence of interests of the
group, which initially consisted only of Western states, made easier the early identification of
problems and the development of common strategies for solving them. »G7/G8 combines a
high degree of ability to act with open, rapid and comparatively lean procedures, according to
the German Finance Ministry (BMF 2007: 42). Nothing changed when Russia joined in 1998
since the new member was granted only subordinate status in the club.

The G7 has been criticized as well for not including emerging markets or representing
enough of the overall global economy. Occasionally, the G7 welcomes guest nations as
nonmembers. The European Union has participated fully in the G7 since 1981 as a non-
enumerated member.

There’s also a question of legitimacy to the power of the group. Many analysts believe
the power and prestige of the Group of Twenty (G20), a forum for finance ministers and central
bank governors from nineteen of the world’s largest countries as well as the EU, has
surpassed that of the G7. Emerging powers such as Brazil, China, India, Mexico, and South
Africa, whose absence from the G7 was often noted, all belong to the G20. Russia remains a
member of the G-20. The group’s member states represent about 80 percent of global GDP
and two-thirds of the world’s population.

U.S. President Barack Obama affirmed this in 2011, calling the G20 the “premier forum
for global economic coordination.” Many observers note that the forum was most effective
during the 2007–2008 global financial crisis; G20 leaders first met in Washington in 2008, after
the fall of Lehman Brothers.

For the past 14 years, the G7 has said it would spare no effort to complete the Doha
round of trade liberalisation. It remains unfinished. The G7 is supposed to prevent beggar-thy-
neighbour economic policies, yet its member countries are blatantly seeking to drive down
their exchange rates to secure a competitive advantage.

G7 countries have failed to implement many of the recommendations of past summits,

notably those recently committing the U.S. and other wealthy nations to debt relief, reductions
of carbon emissions, conflict prevention, and reform of the international financial architecture.

The U.S. failure to pursue its foreign policy within the UN’s framework or to pay its dues to the
UN, undermines Washington’s credibility as a responsible global leader, while creating
widespread concern that the U.S.-dominated G8/G7 functions as the actual center of global
governance.

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The lack of attention to deepening impoverishment of those not benefiting from economic
globalization reinforces criticisms that the G8/G7 is more concerned about increasing the most
powerful nations’ wealth than about its professed goal of increasing global prosperity and
democracy.

Criticisms of the G7 are often qualified with reference to the questionable legitimacy of
the universalistic UN because many of its member states in contrast to Western countries;
Exhibit a democratic deficit. In addition, the defenders of the G7 enthusiastically embrace the
argument of output legitimacy which results from dealing with problems successfully. As a
prime example we shall cite the summit decision of 2005 on multilateral debt relief for the
poorest countries which prepared the ground for a debt renunciation by international financial
institutions amounting to around 56 billion US dollars. A further G7 success was the foundation
of the Global Fund to Fight aids, Tuberculosis and Malaria in 2001. A fundamental factor in
the limited increase in significance of the G8, which is reflected in the major protest actions of
recent years, is the extension of its range of issues. While in its initial years it was concerned
almost exclusively with economic issues, after 1980 foreign and security policy issues got onto
the agenda. Since the 1990s government leaders have more and more frequently concerned
themselves also with environmental and development-policy issues.

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 IV. CONCLUSION

Just like with every other organization, it has its own flaws that global leaders must
take action. The G7, however, by far is still one of the powerful organizations for some reason.
It’s not bounded by a charter that may limits its abilities, powers and even align its ideas and
goals. This organization is constantly evolving and responding to the challenges of the present
world which is extremely important to the kind of world we are living in today.

The G7 is still mostly an economic organization. Unlike the Security Council of the
United Nations which also have its own type of membership. The Security Council consists of
fifteen members. The great powers that were the victors of World War II. The Soviet Union
(now represented by Russia), the United Kingdom, France, China, and the United States serve
as the body's five permanent members. These permanent members can veto any substantive
Security Council resolution, including those on the admission of new member states or
candidates for Secretary-General. The Security Council also has 10 non-permanent members,
elected on a regional basis to serve two-year terms. The body's presidency rotates monthly
among its members.

G7 proves that economics may come first before politics and it gives that notion to
strive unlike any other forums that exists today. It was effective for the most part although it is
being challenged by the emerging economic powers. The main objective of G7 is to provide
opportunities for leaders to get to know one another well and understand one another’s
domestic economic and political positions and constraints has been a useful role of the G7
from the beginning. Leaders, unlike ministers, are not constrained by their portfolios or by a
more senior authority. Summits can and do deal with a broad range of economic, political and
other global issues in an interlinked fashion. On this aspect, they already attained their main
objective.

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