Balance of economic power shifts away from big states
The G-8 is in danger of being eclipsed by the growing clout of the world's leading emerging nations and the prospects of the broader-based G-20.
Berlin -- The historic Adriatic port of Trieste was an appropriate backdrop for Tuesday's meeting between Italian Prime Minister Silvio Berlusconi and German Chancellor Angela Merkel, which was held as Rome prepares to head the Group of Eight (G-8) leading industrial states.
Once a flourishing city lying at the intersection of pre-First World War political life, Trieste suffered a rather sharp decline in its fortunes following the end of the Austro-Hungarian Empire and the shift in the international balance of power.
Now a similar fate could be facing the G-8 with the group in danger of being eclipsed by the growing clout of the world's leading emerging nations and the prospects of the broader-based Group of 20 (G-20) carving out a more active role in the deliberations on key economic questions.
In particular, this comes in the wake of the emergency summit in Washington on the weekend, which brought together the G-20 government chiefs.
Representing both major industrial states along with leading emerging economic powers, the G-20 Washington summit was the first time that government leaders have met together since the group was established in 1999.
Previously, G20 gatherings were for essentially for the bloc's finance ministers and central bankers to meet.
Coming in the wake of the financial storm that swept through world markets and the deepening sense of global economic gloom, the historic meeting of G-20 leaders successfully agreed to a plan to ward off recession as well as laying the groundwork for a far-reaching overhaul of the world's financial system.
"What we are seeing is a huge shift in economic power," said Klaus Baader, Merrill Lynch's London-based chief European economist. "The shift from the G-8 to the G-20 is the most visible sign of this. The G-7/G-8 is simply not adequate or appropriate for shaping the world economy."
Indeed, by the time the G-8 leaders, which includes the US, Germany, France, Britain, Italy, Canada, Japan and Russia gather in July for their annual summit, the G-20 leaders, which also includes China, India and Russia will have already set in motion moves for a shakeout of the global financial system based on a lengthy review by their finance ministers.
Also, the build-up to next year's G-8 summit on the island of La Maddalena off the coast of Sardinia is likely to be accompanied by the advanced economies slumping into recession while the leading emerging economies once again acting as locomotives for growth.
Speaking at a G-20 finance ministers meeting in Brazil in the run-up to the Washington summit, World Bank chief Robert Zoellick said a new grouping of nations needs to be formed.
"We need to modernize the multilateral system to bring in the important developing country voices such as Brazil ... I think over the next two years we are going to see some real changes to the global system," said Zoellick.
To be sure, in the nine years since the G-20 was established, the world economy has been transformed with the powerhouse economies of Asia, Latin America and the oil-rich Middle East becoming the key forces of growth as they draw in exports to underpin their economic change.
At the same time, many leading emerging economies have been able to exercise considerable weight in the world economy partly as a result of the massive sovereign funds and currency reserves they have built up in recent years.
With this in mind, the world financial crisis has been a defining moment in the ascension of emerging economies onto the international economic stage with the big industrialized nations forced to seek out their help in drawing up global solutions to the upheaval rapidly spreading throughout the world economy.
But then, the creation of a bigger, more representative forum than just the exclusive club of the G-8 is something that key emerging economies have been fiercely promoting for sometime.
An objective of the Washington summit, said Brazilian Foreign Minister Celso Amorim was "to institutionalize the meeting of G-20 leaders." Officials said, however, that this issue was not even discussed at the gathering in Washington.
It was simply assumed that it would be the case with the meeting's agreement to boost the role of the world's leading emerging economies in the top international financial organizations one of the key results of the gathering.
However, the G-8 has for a considerable time recognized the economic transformation underway in key emerging economies and the role they play in helping to drive growth as well stabilizing the world economy and international political life.
After expanding the G-7 to take in Russia, nations such as Mexico, Brazil, China and India have in recent years been included in the G-8 process, with their leaders attending the annual summits.
That said, the rapid responses of the world's top central banks such as the US Federal Reserve and the European Central Bank to the financial crisis have also highlighted the crucial role played by the monetary authorities in the key industrialized nations in global economic policy making.
It is also likely to be the big fiscal stimulus plans and bank rescue plans pieced together by the most advanced economies such as the US, Britain and Germany