PITTSBURGH – Prime Minister Stephen Harper will join other leaders from rich and emerging market countries in agreeing to key reforms to the banking sector on Friday, but the G20 is under mounting pressure to say how it will pay for crucial climate change efforts.
Harper joined U.S. President Barack Obama and the rest of the G20 at a dinner meeting in a garden-ringed glass building in Steeltown Thursday night, as more than 4000 police kept protesters at bay with tear gas and batons.
The U.S. served up Harper a dessert that may leave a sour taste.
A sudden indication that the U.S. will pronounce the G20 as the main economic forum of the world instead of the G8 appeared to put Harper in an uncomfortable position.
Harper is hosting the next G8 summit, and will be left having to scramble to turn the summit into something meaningful, that maintains Canada’s importance in global affairs.
A U.S official said late Thursday that the G20 will assume the role of a permanent council on global economic cooperation.
The official, who spoke on condition of anonymity before the official announcement expected Friday, said the G8 would continue to meet on matters of common importance such as national security.
But the official said the G8’s role as a board of directors for the global economy will be taken over by the larger G-20, which includes major emerging economies such as China, Brazil and India.
The pronouncement will prompt some serious rethinking about how Harper should handle next summer’s G8 summit in Huntsville, Ont.
A Harper spokesman said there will be a G8 summit in Huntsville no matter what.
The Prime Minister was expected to address the issue first thing Friday morning, when he will hold a joint news conference with his Korean counterpart.
Former prime minister Paul Martin long championed the supremacy of the G20 – an idea picked up recently by Liberal Leader Michael Ignatieff. Harper has skirted the issue.
Harper’s officials indicated the summit would likely produce a deal on how to control pay for banking executives – a pact that will appease taxpayers upset about rich bankers getting government bailouts, and will also modify the amount of risk traders are willing to take on.
Leaders are also likely to agree a framework to increase the level and quality of capital that banks need to keep on hand – a key crisis-prevention measure that will eventually make the rest of the world’s banks look more like Canada’s, officials said.
And U.S. officials said talks among the G20 could also produce an agreement that would lead to more balance among world powers. The deal would encourage China to rely more on domestic demand to prop up its economy, and also encourage U.S. consumers to save more.
Harper also announced Thursday that Canada would temporarily make $2.6-billion available to the African Development Bank, so that it could increase its lending base and improve financing conditions in Africa.
“It’s all going according to plan,” analyst John Kirton said of the Pittsburgh summit. He is the director of the G20 Research Group at the University of Toronto. “It’s moving towards the success it was planned to be.”
The main goal of the G20 leaders is to make sure the stimulus measures they agreed to over the past few months to staunch the global recession stay in place long enough to ensure recovery is well entrenched.
In a pre-summit meeting with labour leader Ken Georgetti on Thursday, Harper said he had no intention of letting up on stimulus, and would urge other countries to stay the course, Georgetti, the president of the Canadian Labour Congress, said in an interview.
“He acknowledged that this crisis isn’t over, and that government support will continue.”
Japan and Germany, however, have shown signs of withdrawing their stimulus – moves that are no doubt worrisome to Canada since its trade depends on a strong global economy.
On climate change, the leaders will consider supporting a U.S. proposal to gradually reduce subsidies for fossil fuels. Such a measure would mean major changes in Indonesia and China, where gasoline is subsidized.
Canada would not have to make any changes to support such a proposal, officials said, although experts questioned whether the tax treatment of oil investment might eventually come under a spotlight.
But the larger question of how to finance climate change efforts in developing countries still has no answer. The G20 agreed at its second summit in London last spring that rich countries should set up a fund that would help poor countries pay for cutting emissions, but only a few countries have made firm financial commitments.
New climate-change commitments this week from China and Japan have ratcheted up pressure on Canada and other countries to put money and measures on the table at the G20 summit in Pittsburgh.
Obama has seen his own carbon cap-and-trade commitment stall. Harper and the other leaders will be watching to see whether Obama will make some kind of firm commitment on greenhouse gases to reciprocate the goodwill shown by the two Asian powers.
“I think there will be pressure on President Obama to deliver something at the G20 on financing climate mitigation and adaptation in developing countries,” said Dale Marshall, the climate-change policy analyst for the David Suzuki Foundation.
Harper has tied Canada’s climate-change plan to Obama’s in an effort to arrive at a common North American initiative on greenhouse gas reduction, but neither country has a clear plan. Ottawa has made it clear that any Canadian contribution to help developing countries with climate change would come mainly from selling permits to corporations to participate in a cap-and-trade system that has yet to be set up.
International organizations have said that the developing world needs at least $150 billion a year to get to a point where they could start cutting emissions, and the G20 is nowhere near committing that amount.
“Without the financial and technological support, we will not see poorer countries in the developing world come forward with their own commitments,” Marshall said.