The G7 rich nations hoped to decide its future as an institution yesterday, with the US pushing for the creation of a smaller core group that would include China, a G7 official said.
The official, speaking on condition of anonymity, said Washington wanted to see the G7 supplanted in global economic policymaking by a Group of Four that would bring the US, the euro zone and Japan together with China.
The official was speaking ahead of a meeting of G7 finance ministers and central bankers in Istanbul later yesterday. The G7 is gathering on the sidelines of the semiannual meetings of the IMF and World Bank.
For more than a decade, the G7 dominated international policymaking. But the financial crisis has undermined its power, as big developing economies such as China have become key to managing the global recovery.
Any formal move to supplant the G7, which comprises Britain, Canada, France, Germany, Italy, Japan and the US, would likely be diplomatically complex and controversial.
But the group’s role has appeared in doubt since a larger group of nations, the G20, earlier this year became the main forum for debating the financial crisis. The G20 has agreed in principle to tighten financial regulation and try to reduce trade imbalances that destabilize the global economy.
“The G7 is not quite dead, but it is losing its relevance,” IMF managing director Dominique Strauss-Kahn was quoted as saying by Emerging Markets magazine yesterday. “It’s on its way to extinction.”
Finance chiefs from the G7 gathered yesterday for talks on the economic crisis as doubts swirled about the health of the global economy.
“No way can we say that the crisis over” because of rising unemployment and a weak financial sector, Strauss-Kahn said in a BBC World debate ahead of the talks.
French Finance Minister Christine Lagarde, who will also be taking part in the G7 talks along with her colleagues from Britain, Canada, Germany, Italy, Japan and the US, said: “I have my eyes riveted on the unemployment rate.”
Russian Finance Minister Alexei Kudrin was also to attend the meeting. The talks were to be the first for new Japanese Minister of Finance Hirohisa Fuji, seen as an experienced bureaucrat lacking in international experience.
The meeting in Turkey’s biggest city came after the US — the world’s biggest economy — this week reported higher than expected unemployment figures and a setback in the recovery of its battered manufacturing sector.
US President Barack Obama on Friday said the job losses were “a sobering reminder that progress comes in fits and starts.”
“We’re going to need to grind out this recovery step by step,” he added.
The IMF has said that a tentative global economic recovery has begun and the G7 talks will discuss “the next steps and implementation” of a roadmap agreed at the G20 summit last week for recovery, a US Treasury official said earlier.
The Fund said yesterday that Europe must move to clean up its banks after testing their financial stability. “It’s time to clean the banks,” said Marek Belka, head of the IMF’s European department.
“We need a more resolute approach to addressing the balance sheet risks faced by banks and to take action for recapitalisation or restructure viable institutions and dissolve others as necessary,” he said.
Bank tests were “very helpful” but there should now be action, he added.
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