How the G20 Can Hasten Recovery from COVID-19



Maurice Obstfeld and Adam S. Posen | Peterson Institute for International Economics

The global financial crisis of 2008–10 brought the Group of Twenty (G20) into being. Nearly 12 years later, what we have misleadingly called the postcrisis period has proven to be a mere pause between savage global shocks—this one the result of a global pandemic—demonstrating that international cooperation is a recurrent need.

The G20 must rise urgently to the challenge as it did in the last global crisis, but even more forcefully with more lasting commitment. This PIIE Briefing sets out ten policy areas where practical near-zero cost collective actions can meaningfully speed the return of global health, physical as well as economic. Fruitful areas of cooperation range from disease control, to international trade, to financial policy.

Importantly, many of our recommendations are simply for mutually binding and beneficial changes in government behavior, whether forswearing self-defeating aggression in trade or agreeing to lean together against dollar shortages and excessive capital flows; no additional expenditure is needed, just getting past mutual distrust.

Most of our other recommended policies require only small investments, like in health innovation, or self-liquidating ones, like in central bank liquidity provision. This is the proverbial low-hanging fruit. Leaders just need the vision and will to act collectively to grab it. Collective action, and the small allocation of additional resources, primarily to the world’s poor, will be rapidly repaid.

When the world faces a common economic threat, cooperation between the governments of the most important economies is both attainable and genuinely worthwhile. G20 meetings can be more than just a formal photo-op with a barely changing communiqué on substantive policy measures.

We saw this in the first two leaders’ meetings of the G20 in 2008 and 2009, where the agreements reached helped put a floor under the global economic freefall (see the resultant April 2009 communiqué). The key is commonality of the threat—not that every economy is suffering in the same way and amount as the others, but that all economies need to move in the same direction at roughly the same time.

That is unquestionably the case today with the COVID-19 pandemic shutting down economic activity and people’s livelihoods around the world, while increasing demand for medical expenditure and public health cooperation.

In a global economic crisis, the G20, and international economic cooperation in general, can be useful in four ways:

  • Increasing domestic compliance with best practice through transparent peer pressure.

  • Stopping financial panic.

  • Preventing mutual economic aggression from worsening the crisis.

  • Helping the world’s poor survive the crisis fallout.

All of these would be important contributions to global recovery. So far, the G20, and particularly the working group of central bankers within it, has been remarkably quick to take on the second task, stopping financial panic. Within advanced economies’ financial markets, at least, their stabilization measures have been effective. The G20 has also taken some steps toward using transparent standards to improve members’ public health management and investment, though these have been insufficient.

The latter two areas of potential gains—preventing escalation of economic aggression and helping the world’s poor—have seen more lip service than meaningful action so far, despite efforts to encourage more cooperation through the International Monetary Fund (IMF), World Trade Organization (WTO), World Bank, and World Health Organization (WHO).

Economic nationalism harms everyone, particularly the world’s poorer countries but also the vulnerable within the G20 members’ own borders. Preventing it would, therefore, significantly improve human welfare in comparison with the alternative outcome now emerging in the absence of more positive G20 action.




To view the full report, click here.