Italy’s approach to the Rome Summit in 2021
With the pandemic persisting and climate change heating up, the G20 has a tough task ahead – yet it remains a vital forum for tackling such issues
The agenda of Italy’s 2021 G20 presidency is structured around three transversal policy pillars: ‘People, Planet, Prosperity’. People means tackling inequality and promoting equal opportunities. Planet means implementing the Paris Agreement and the Sustainable Development Goals. Prosperity means fostering new technologies and the digital transformation as drivers of growth and a better quality of life. G20 members must agree on shared commitments to build a strong, balanced, inclusive and sustainable recovery from the COVID-19 pandemic that can help bridge widening gaps in income inequality and gender in societies.
The G20 has emerged as the sole global forum able to handle the climate change crisis we are currently facing. G20 ministers in charge of energy and climate agreed on combatting climate change in July, accelerating the clean energy transition and fostering innovative technological solutions by 2050. Most developed countries also agreed on developing green finance infrastructure, and announced that a substantial amount of resources will be used to favour the green transition.
The post-pandemic economic system should find better ways to distribute resources and allocate taxes. Domestic tax base erosion and profit shifting due to multinational enterprises exploiting gaps and mismatches among countries’ differing tax systems affect public revenues in all G20 members, especially in the emerging economies. The Organisation for Economic Co-operation and Development estimates the loss of tax revenue to be €240 billion, and governments need fresh resources to finance the recovery from the pandemic-caused crisis. In July, the G20 finance ministers adopted the OECD’s proposal for a global business taxation scheme that has been discussed extensively among developed countries over the past five years. It applies to multinational enterprises with a global turnover above €20 billion, and relies on the principles of tax certainty, double taxation avoidance and simplification. However, the devil is in the details and substantial efforts are necessary to develop a fair and efficient global business tax system to avoid the ‘beggar thy neighbour’ response that has prevailed so far.
Digital developments
In the COVID-19–afflicted digital world, most technological revolutions bring financial risks that should be managed actively. In particular, digital finance services (blockchain), intermediaries (fintech) and markets (tokens) should have soft regulations, so as to overcome the fear of losing market share that has prevented most countries from acting so far. Cryptocurrencies and digital currencies traded on blockchain have the potential to substitute, at least partially, for central banks’ money, without any guarantee for final users. This structural change cannot be reversed, and even a conservative monetary institution such as the European Central Bank is working on a digital euro.
Fintech intermediaries mostly adopt data-driven business models, where payment services are provided free of charge in exchange for personal data. This business model can represent a threat from a social and economic perspective, since those using it can misuse personal data and limit – rather than expand – competition. Fintech intermediaries, such as automated credit providers, can increase the supply of credit for small and medium-sized enterprises but, at present, have no capital requirements and can thus actively contribute to global financial instability, in the case of adverse shocks. The tokenisation of exchanges widens the opportunity to access the financial system for small and medium-sized investors, but works under no supervision or risk management system (such as a centralised clearing system).
Reaching consensus
The race to the bottom in regulating the digital finance world leads to excessive risks and moral hazard behaviour. Similar to what happened soon after the financial crisis in 2008, G20 members should define common principles for the fair development of the digital financial services industry, balancing the rights of end users and global market stability. G20 members have not yet reached a common position, because of the loss of consensus and profits that regulation inevitably creates. It is very likely that the Italian presidency will not force members to adopt a binding position that introduces any soft law regulation of the digital finance system.
Italy’s agenda includes some objectives widely shared by G20 members, which therefore have a high probability of leading to binding political commitments defined at the leaders’ meeting in October in Rome. These shared objectives are the fight against climate change with an agreement to reduce emissions by 2050 and the definition of the principles and rules for implementing a global tax on corporate profits.
Rome is the city where the European Union was founded in 1957. In 2021, Prime Minister Mario Draghi will use his persuasive skills and extensive experience to gather a similarly historic consensus on these central policy issues.
