WASHINGTON – Skyrocketing gas prices. Surging food costs. Markets in freefall.
The international financial crisis will be front and center as President Joe Biden meets with leaders of some of the world’s most advanced economies this weekend in the Bavarian Alps.
Rich nations that make up the Group of Seven, or G7, will band together in an attempt to stabilize the global economy while maintaining and potentially increasing punitive actions on Russia over its war in Ukraine.
Clean energy initiatives that Biden and other world leaders had hoped would be the focus of the summit will take a back seat to discussions about support for Ukraine, fears of a global recession and ways countries can work together to fight inflation.
“There are no quick solutions to these challenges,” said Miriam Sapiro, former acting U.S. Trade Representative under President Barack Obama. “Working on the right plan and getting it implemented – whether we’re talking about energy security, food security, reconstruction needs, financing for those needs, and potentially reparations – there’s planning that needs to take place now in a cohesive, expedited way.”
World leaders are grappling with expansive challenges, many stemming from the coronavirus pandemic and Russia’s assault on Ukraine. Leaders have committed to discussing those issues along with infrastructure development, democratic resilience and climate security during their talks in Europe.
Soaring inflation a key theme for leaders
Inflation has soared since countries that make up the G7 – which are the U.S., UK, Germany, France, Italy, Canada and Japan – began to impose stiff economic sanctions on Russia, which was once a part of the cohort.
Food, housing and gasoline costs all rose in the U.S. in May, and year-over-year inflation increased 8.6% in the latest consumer price report. The spike in costs was a 40-year high.
Costs are also higher in other G7 nations. For instance, in the UK, inflation was 9.1% higher in May than a year prior. France saw a 5.8% year-over-year increase in inflation.
Next year, the U.S. could enter into a recession, prominent economists are warning. Organizations such as the International Monetary Fund are predicting significant slowdowns in economic growth and have revised down their global growth forecasts.
“Everybody is lowering their projections for what the world economy is going to do,” said Mark Weisbrot, co-director Center for Economic and Policy Research. “And there are going to be recessions.”
Central banks around the world have responded to heightened inflation by raising interest rates. The Federal Reserve last week announced a three-quarters of a point increase in short-term interest rates, the biggest since 1994.
Policy experts say there is little else G7 leaders can do to bring down costs in the near term. Not even a reversal of punishing actions on Russia would immediately ease price pressures, they said.
“The dirty secret is, political leaders can’t usually do a whole lot to change immediate economic trajectories, because they are so bound up in a global cycle of supply and demand,” said Christopher Smart, a former Obama White House economic adviser.
As wealthy nations emerge from the pandemic, demand for oil has outstripped supply, leading to higher fuel costs and grocery bills.
“Some of it is Russia, but some of it is just the recovery from the pandemic and a tight oil supply, even before the Russian invasion,” Smart said. “So I’m not sure changing our view on Ukraine, changing our policy on Russian sanctions, is going to do much at the gas pump.”
Biden asked oil companies last week to offer ideas for how to increase output and lower costs for consumers. On Wednesday, he called on Congress to approve a 90-day suspension of the federal gas tax and urged states to pause their fuel taxes.
The attempt to make summer travel cheaper for Americans cuts against Biden’s broader effort, and the efforts of G7 nations, to reduce reliance on fossil fuels.
“All of these G7 countries are in the same boat,” said Maurice Obstfeld, a former economic adviser to Obama and senior fellow at the Peterson Institute for International Economics. “The consumers are facing higher energy prices, which are feeding inflation, and they’re all trying to take measures to soften that blow to their economies.”
The U.S. could try to further target inflation by dropping restrictions on the amount of steel and aluminum that can be imported from Europe duty-free, accelerating planned investments in renewable energy and buying more oil from nations such as Saudi Arabia, experts said.
Eliminating tariffs on European metals would not significantly reduce inflation, economists noted. But it could help Biden to build cooperation with U.S. allies and show he is fighting high prices with every tool at his disposal, said American Enterprise Institute senior fellow and former IMF official Desmond Lachman.
“He’s got an election coming up in November, and inflation is the number one problem. So he needs to be seen to be doing something to try to get control on the inflation side,” Lachman said. “Whether he can get anything meaningful that is going to make much of a difference, I am pretty doubtful on, but he needs to be seen to be doing something.”
In remarks to major economies at a virtual forum last Friday, Biden emphasized that nations are working together to stabilize global energy markets by investing in green energy initiatives.
Biden has set a 2030 goal for half of America’s cars to be zero-emission. He has urged major economies at the forum to make similar pledges.
Policy experts said Biden is right to invest in renewable energy. But that is a long-term solution at a time when the U.S. is facing urgent economic and security problems, they stressed.
Pressures at home for Biden
His approval rating stuck at 39% in the latest USA TODAY/Suffolk Poll, Biden insisted last week that a U.S. recession is not inevitable and urged midterm voters to have confidence in the economy.
Biden’s political and economic woes at home are set against the backdrop of Russia’s unrelenting assault on Ukraine, which now tops the agenda for the global economic summit.
Ukrainian President Volodymyr Zelensky is expected to address leaders virtually at the gathering that is taking place in the German alps at a luxury hotel and spa.
Zelensky will also deliver remarks at the NATO summit in Madrid, which Biden will attend after the G7 gathering.
NATO nations will seek to show their solidarity on their response to Russia’s war and dispel any public notion of disagreement among members about the future of the war.
“There’s a general theme that emerging economies are less on board with sanctions and trying to chart a middle course,” Obstfeld said.
Need a sentence here that says NATO is a chance to show solidarity against Russia’s war in Ukraine.
Allied nations will consider new ways to squeeze Russia and tap into oligarchs’ wealth at the back-to back conferences. They are also expected to discuss ways to fund Ukraine’s reconstruction.
“Billions of dollars of infrastructure have been destroyed already. Roads, bridges, ports, whole towns,” Sapiro, the former acting U.S. trade representative, said. “There should be an examination by the G7 leaders as to whether seized or frozen Russian assets could be used for reparations and reconstruction. That would be an important signal to send.”
Legal scholars in the United States are divided on the question of whether the country can liquidate and redirect frozen or seized assets.
Josh Lipsky, a former IMF adviser who is currently the director of the Atlantic Council’s GeoEconomics Center, said G7 leaders are unlikely to take a joint, public stance.
“The actual legal hurdles, and then the economic hurdles of taking frozen assets and converting them into money that is then seized is an enormous step that I don’t think the Europeans or the Americans are willing or want to take right now,” Lipsky said.
This article originally appeared on USA TODAY: Biden meeting with G7 nations on economic crisis, conflict with Russia