Kevin Rudd sounds alarm over need to aim higher at G20 summit

Kevin Rudd

IN his strongest warning on a policy issue Foreign Minister Kevin Rudd says financial markets expect global leadership and that any failure at the G20 Cannes meeting next month will threaten its credibility as an institution and Australia's strategy as a middle power.

Reading between the lines of Rudd's comments there is only one interpretation - he fears that Prime Minister Julia Gillard and Treasurer Wayne Swan are not sufficiently investing in the G20 to address the growing economic crisis.

The sensitivity on this issue is extreme. Rudd's attachment to the G20 and its centrality for Australia is born of his achievements as prime minister. Indeed, Rudd's most important foreign policy feat as PM was his commitment after the 2008 financial crisis pushing co-ordinated global action and lobbying to have the G20, which includes Australia, enshrined as the new pre-eminent economic decision-making body.

Rudd believes these historic gains are now at risk. This drives the warning he has sounded. It goes not just to his legacy as PM but, more significantly, to Australia's seat at the world's top table for the first time in our history as a nation. For much of this year Rudd has contemplated the question: "How long will this last?"

His public urgings will leave Gillard and Swan unmoved. They would reject outright the legitimacy of the policy concerns he expresses and concerns over their commitment to the G20 process.

The truth, however, is the G20 is struggling. While this is a European crisis that needs a European solution the problems of the eurozone and the weak North Atlantic economy demand political resolution from the G20 that includes the main developed and developing nations. Rudd says "whether we like it or not" the unresolved European financial crisis is now the pre-eminent test for the G20.

In his September 30 speech at the University of Queensland, Rudd said: "The reality is that the G20 will only continue to attract support so long as it remains capable of delivering on its core economic objectives. The G20's credibility will rise or fall on its ability to provide the guidance and action that the global economy needs."

Pivotal to Rudd's position is his belief that Australia's role in the G20 is a watershed for our global standing and influence. Confronting this directly he said: "In 2011 Australia's G20 membership now lies at the absolute core of Australia's foreign policy. It provides a platform for Australia to do so much more in the world as a middle power with global interests.

"It provides us with a platform to engage directly (not indirectly through the proxy of others) on the critical challenges of the global economy, the environment and climate change - challenges which all directly affect our national interest.

"Australia first sought membership of an expanded G7 more than a quarter of a century ago. We failed. Three years ago, we succeeded. It was a hard-won prize. Many others around the world actively fought against it. We prevailed through more effective global diplomacy.

"And now, under no circumstances, can we allow it to falter. We have too much at stake. So too does the world."

This narrative refers to Rudd's sustained campaign over 2008 and 2009 to have the G20 replace the G8 as the world's main decision-making body. In broad terms this was a global diplomatic battle between France spearheading the Europeans and Australia leading the charge on behalf of nations standing to gain new access in a G20.

The critical decisions were taken in Washington and Beijing. The Obama administration was divided between the G14 (which would have excluded Australia) and the G20. Forceful and undiplomatic representations were made by Australia's then US Ambassador Dennis Richardson to the effect that Australia could not forgive any US decision to exclude us. Rudd's natural allies were Indonesia, South Korea and Turkey, all now G20 members.

Britain's then PM, Gordon Brown, was a staunch supporter of Australia. China wanted the bigger group to help dilute US power. Eventually President Obama came down for the G20.

The first G20 leaders' meeting took place in Washington in November 2008 after the Lehman Brothers collapse. This meeting was followed by those in London in April 2009 and Pittsburgh in September 2009 producing decisions to keep banks solvent and re-capitalised along with a hefty fiscal and monetary stimulus to deny economic collapse. Rudd argued the G20 prevented the 2008-09 recession from becoming a depression.

The key to the G20 lies in the heads of government dealing before meetings and their ability to broker political results when they meet. In Rudd's period as PM much of the pre-meeting activity focused on the US, China, Germany, Britain and Australia.

Rudd's fears cannot be missed nor can the fact that as Foreign Minister he is now removed from the real action. His frustration is palpable.

Consider his urging that "under no circumstances" can Australia allow its position to falter.

Consider the sub-text, namely, that Rudd got Australia into this favourable G20 position and he fears that Gillard and Swan are risking it. Rarely has the dysfunctional nature of Rudd's policy relations with the Prime Minister and Treasurer been so obvious.

Consider also the alternative perspective. After a slow start Gillard is now putting her imprint on foreign policy, announcing last week a white paper on Australia and Asia, hosting the upcoming Commonwealth leaders meeting in Perth, hosting President Obama's visit and in coming weeks facing critical meetings with the G20 in France, the East Asian Summit in Bali and the Asia-Pacific Economic Co-operation meeting in Hawaii. Gillard will not take lightly to implications she invests less in the G20 than did Rudd. Having blundered at the outset on foreign affairs she now looks to the global stage to buttress her diminished profile.

As for Swan, he is now one of the most senior G20 finance ministers, is Euromoney's minister of the year and has recently attended the G20 finance ministers' meeting, where he had a lot to say about the crisis. Swan has publicly told the Europeans the issue in the current crisis is "political will".

There is no doubt he is seized by the gravity of the situation. Swan's message is that 2008 is different from 2011 but "could prove every bit as threatening" if not confronted.

The Treasurer warned in the US there was "limited confidence" in the ability of governments to deal with the situation. He said if hard decisions were not taken then "three years' time from now we may well have locked ourselves into a prolonged period of global stagflation". The obligation on leaders was to avoid the sort of "decade of destruction that followed the Great Depression".

The difficulty, however, is that contemporary problems seem beyond the scope of contemporary leaders. This crisis originates in Europe. Australia's influence in that domain is limited in the extreme. The politics of 2011 are far tougher than the politics of 2008.

Three years ago the need was for bailouts, stimulus packages and cutting interest rates. In 2011, by contrast, the task involves cutting living standards to manage a debt crisis (while avoiding excessive austerity in the near term) and restructuring economies to remove global financial imbalances. The difficulty is much greater.

The risk exists of a truly vicious cycle, namely, that lower growth deepens the debt problem thereby intensifying financial market alarm and weakening the banking systems.

The heart of the new crisis, as the International Monetary Fund says, lies in this intersection between the stalling of growth in advanced economies and the rise of financial fear originating in but not limited to Greece's sovereign default dilemma. Beyond this, financial rebalancing demands a shift in China's economy from exports to domestic demand with a higher, more market-based exchange rate. Swan is pushing for this change. The US is obsessed about it.

There are two core messages from Rudd's speech. First, he radiates a vision for the G20 that originates in his prime ministerial role as a foundation architect of the leaders' meeting and an activist when those meetings occurred. He wants to push the G20 into the climate change, trade and development agendas.

In many ways the high tide of Rudd's time in the Lodge was his domestic and international management of events flowing from the 2008 crisis. It is embedded in his brain. The G20 is embedded in his idea of Australia's role in the world. For Rudd, it is our No 1 diplomatic priority. Given this, there is no way Gillard or Swan could meet Rudd's tests.

Second, Rudd signals that if he returns to the Lodge then he returns to his G20 diplomacy. For Rudd, this would be core business. He would become, again, the high profile PM, relentlessly active on the phone to other leaders seeking to broker new policies and global economic arrangements.

Is he inviting an unfavourable contrast with Gillard? You bet.

Sadly, however, the warning in Rudd's speech about the G20 may be realised. Can the G20 stay the course and remain viable?

Last March, before the current crisis, when I was talking to Rudd about the G20 he said that global economic co-ordination was its core business and "if it cannot deliver on this then it falls over". A salient warning.