G7 led by US can't drive the world economy anymore. G20 must step up.

Once again the world economy is on the brink. Only three years ago America was the epicenter of crisis. Today it is Europe. An enormous insecurity about the future has gripped ordinary citizens and investors around the world. Frustration and anger are spilling into the streets.

Once again the G20 must act to prevent a devastating slide into a deep contraction, if not depression, and avoid a damaging retreat into protectionism and competitive devaluation.

At the Cannes Summit, the G20 countries should recognize once and for all that, in today’s tightly linked global economy, no single country or bloc of countries is immune to spreading fragility and volatility. The advanced and emerging economies alike are highly vulnerable to economic and financial turmoil beyond their borders.

The only answer to this challenge is for each to work with the others, make the requisite adjustments, and reach a common balance to the benefit of all. Political leaders must acknowledge this convergence of interests as the heart of the G20 process so they can begin to build a sustainable community of interests at Cannes and beyond.

Under French President Nicolas Sarkozy’s leadership, the G20 countries should develop a credible global growth and employment strategy that aims at an inclusive expansion that narrows the growing income gap within countries and between nations, fairly sharing the burden across boundaries.

Today, Europe is the urgent priority. The Brussels agreement on Greece’s sovereign debt and the more realistic “haircut” for bondholders, an increase in the firepower of the European Financial Stability Facility (known as the "rescue fund") to a potential 1 trillion euros, and bank recapitalization are necessary and significant steps.

But as markets have already realized, Europe’s fiscal, banking, and political crisis can only be resolved in a way that does not hamper growth prospects in the short term while putting into place credible long-term policies to reduce deficits. If everyone pursues austerity today, there is no way out for those with unhealthy balance sheets. Where deficits and interest rates are too high, governments have no choice but to cut budgets. Where balance sheets are healthy, for example in Germany, there is more room to support growth.

Greece and the rest of the European periphery can have no credible strategy to return to growth without supportive eurozone action of some kind. They cannot do it alone without the exchange rate or inflation as tools. As other central banks have realized, easing credit restraint is a necessary condition for growth. That is no less true for Europe.

Without such complementary and coordinated policies, Europe’s sovereign debt, just like America’s mortgage debt, will continue to weigh us all down and impede any return to global growth.

Even as Europe seeks outside help from lenders, including from the more resilient emerging economies such as China, the European Central Bank must stand as the lender of last resort.

As everyone by now knows, Europe’s leaders must further commit to far greater integration though a fiscal union and deeper economic coordination, and move toward political union, or face the collapse of the euro.

If the G20 wants to remain credible in this second round of global turmoil, it needs to fulfill all the commitments it took on at previous meetings.

It must refresh its declaration from the London summit to strengthen the so-called surveillance capacity of the International Monetary Fund to independently assess policies of countries that contribute to instability of the global system, enhance its quotas, and reform governance so it reflects the new weight of the emerging economies. There is all the more reason to effect this shift in the near term since the emerging economies are being called upon to participate in the financial stabilization of Europe.

To become an effective institution of global governance and build a community of interests over the long run, the G20 should consider establishing an Executive Committee with a permanent secretariat so there is continuity of policies and decisions across the succession of summits. As with the UN Security Council, the Executive Committee should have permanent members representing all regions, with rotating temporary members.

Further, at this critical moment when protectionist temptations are re-emerging, the G20 needs to reaffirm its commitment to open trade and investment globally by continuing to pursue completion of the Doha trade round that can deliver new, concrete, market-opening steps that benefit developing countries.

Today we are going through a historic structural transformation. The old G7 countries led by the United States are no longer able to keep the global economy afloat and prosperous, yet the emerging economies led by China are not yet able to do so. For the foreseeable future, the G20 will be the mechanism of adjustment to bring this shifting world order into equilibrium.

As the consumer West deleverages its debt, and high-saving export manufacturers like China move toward a consumer-oriented middle-class transition, balancing out the disequilibrium will continue to produce more shocks over the coming years. The G20 must be more proactive in navigating these raging whitewaters of change. To wait for crisis before acting is to invite crisis itself.

Nicolas Berggruen is president of the 21st Century Council, and Nathan Gardels is senior advisor. The council is a forum for dialogue and action on issues of global governance. It met in Paris October 26-27 to prepare recommendations for the G20 Summit in Cannes this week. Among others, 21st Century Council members include senior Chinese strategist Zheng Bijian; former leaders Gordon Brown, Gerhard Schroeder, and Ernesto Zedillo; Nobel Prize-winning economist Michael Spence; PIMCO CEO Mohammed el-Erian; and Google’s Eric Schmidt.

© 2011 Global Viewpoint Network/Tribune Media Services. Hosted online by The Christian Science Monitor.