FINANCE MINISTERS and central bank governors of the Group of Seven leading countries gathered yesterday determined to reinforce the message that countries needed to act swiftly to clean up their banking systems and take action on promises made at the London Group of 20 summit.
Alistair Darling, the UK chancellor, said: “If we do not fix the banks, we will not fix the economy.” His words echoed those of Tim Geithner, the US Treasury secretary.
Continental European nations indicated concern that the US and UK might backslide on commitments for sweeping regulatory reform, while the US appeared worried about the risk that European nations might backslide on stimulus commitments.
Christine Lagarde, the French finance minister, said “I have this concern that as things pick up . . . a lot of people will want to go back to the old games. Go back to making money and exploiting systems as much as they can.”
Mr Darling insisted he had no desire to return to the past: “Banks have to realise they cannot return to business as usual.”
Ms Lagarde said the agreements reached by G20 heads of state in London were a broad brush of necessity and G7 ministers need to provide greater definition, for example, on which hedge funds were deemed systemically important and therefore required greater regulation.
She also gave a commitment to provide greater fiscal stimulus if the economic outlook fails to improve.
A senior US official, meanwhile, said Barack Obama’s administration would expect countries to deliver on stimulus commitments made at the G20 summit and wanted the International Monetary Fund to monitor these efforts closely to ensure they did so.
The G7 was meeting in Washington amid numerous signs that it has had its day as an important world grouping.
The US Treasury scheduled a meeting of the Group of 20 finance ministers immediately after the G7 meeting and officials talked in private of the move in global financial power from the G7 to the G20 having already taken place.
But the problem with various self-appointed groups, such as the G20, is they lack legitimacy and the longer-term mood now appears to be shifting gradually in favour of a new council of the IMF comprising the G20 countries, into which other nations have representations through their membership of the fund.
The G7, G20 and IMF meetings come at a time when finance ministers are beginning to see green shoots of recovery, but big risks remain and the IMF is insistent that countries do more to fix their financial systems before a sustainable recovery can take place.
Germany’s economic prospects have brightened unexpectedly, with a rise in business confidence adding to evidence that the pace of the contraction is slowing in Europe’s largest economy.
However, the boost to the European economic outlook was marred by news of the sharpest contraction in 30 years in UK gross domestic product. – (Copyright The Financial Times Ltd 2009)
