Report on G7 Meeting in Rome and Looking Ahead to London’s G20 Meeting in April
A general view of the Group of Seven (G7) Finance Ministers and Central Bank Governors meeting in Rome, Saturday, Feb. 14, 2009.
The group shot above show the attendees of the meeting. The photo below is a close up of U.S. Federal Reserve Chairman Ben Bernanke, left, U.S. Treasury Secretary Timothy Geithner, second from left, and U.S. Deputy Assistant Secretary of Treasury Mark Sobel who accompanied Mr. Geithner to the meeting.
In a joint statement, issued after the final meeting on Saturday, the members said: “The stabilization of the global economy and financial markets remains our highest priority.”
The group also endorsed Mr. Geithner’’s plan to recapitalize banks, leaving questions about nationalizing banks unanswered. Virtually all G7 members are facing a similar problem, as many of the largest banks in the world bought the toxic derivatives whose origins were in America’s largest banks. As these assets’ true value is exposed, many banks all over the world will find themselves technically bankrupt. No country can afford to have their largest and most influential banks go under, so they are searching for ways to put public capital in them in order to keep them solvent. The question as to what the governments get for their money is still up in the air. Many of the European and Asian countries have no qualms about nationalizing banks. But this is no considered a desirable solution in America.
All of the G-7 members took a conciliatory view of China, praising the Asian giant for its strong stimulus plan. They also muted their criticism of China for keeping the yuan relatively weak. They are now happy if the Chinese monetary authorities keep the yuan appreciating slowly in “relative” terms. This mean that with European currencies already depreciating relative to the dollar, China can allow the yuan to appreciate to falling currencies. This makes it much easier for China to comply and to keep their growth going.
This deference to China underscores how irrelevant the G-7 has become. The economies that are expected to grow over this year (China, India, Brazil and South Korea) are all members of the G-20 rather than G-7: The “old” powers of the G-7 desperately need the growth of China, Brazil and others to at least partially counter the fall in domestic demand they are currently experiencing. America, of course, need China to continue buying its debt.
The final verdict of the meeting is that it is a prelude to the G-20 meeting in London on April 2. The G-20 not only includes among its members the best growing economies, it also includes heads of states as attendees rather than finance ministers. This give it much more clout in its recommendations.
The heaver lifting will be at the G-20 meeting. Greater regulation of the world’s banks, expanding IMF funding and lending, and enhanced membership in the IMF for China and India will be on the table. Also, all the committee leaders will have many additional issues to resolve.
For example, Australia’s Prime Minister, Kevin Rudd, co-chairing the G-20 working group on IMF reform, believes IMF member states will need to act quickly to reform the Fund’s governance. This means, among other things, giving China greater membership clout and give Special Drawing Rights (SDR)to new members. SDRs are an official international reserve asset issued by the IMF to its members, which can exchange them for freely useable currency. Countries that joined the IMF after 1981 have never received an SDR allocation. SDRs can be used to support their own currency if it comes under attack from speculators.
There are many other issues that will be taken up at the G-20 meeting, and I will have a more detailed description of the agenda in the weeks ahead. For an update on the agenda of the London G-20 meeting, follow http://seekingalpha.com/article/123178-prelude-to-april-s-g-20-meeting-showdown-at-the-london-corral
the link above. (2/28/09)
