G7 finance ministers have urged bold reforms to the world financial system while leaving little doubt that the global economic turmoil is far from over.
Italian Finance Minister Giulio Tremonti called on Saturday for a “new world economic order” as he wrapped up the crisis meeting over which he presided in Rome.
In a joint declaration, the G7 called for “urgent reforms” of the international financial system and reiterated a bleak outlook for the world economy after fresh data showed the eurozone recession deepening.
Analysts said the initiatives proposed after two days of talks would be tested in April when the G20 emerging and rich nations are to meet in London, with China wielding particular clout.
Beijing came in for special praise in Rome for its “continued commitment to move to a more flexible exchange rate” that would likely lead to the appreciation of the yuan.
The charge that Beijing was letting its currency slip to protect the price of its exports has been a constant source of friction with Washington.
The G20 meeting will be crucial in reinforcing the ambitions of the G7, said analyst Marco Annunziata, chief economist at Italian bank UniCredit.
“The G20 will be far more important because the G7 countries cannot resolve the crisis on their own. They need the help of the emerging economies,” Annunziata said.
“The fact that China is still buying US Treasury bonds is essential,” Annunziata said.
The financial leaders from the G7 grouping of the UK, Canada, France, Germany, Italy, Japan and the US plus Russia met as countries were struggling with the worst economic crisis in decades.
Grim data on Friday showed that the eurozone economy slumped by 1.5 percent in the fourth quarter of last year. The EU overall and several individual EU countries — including G7 host Italy — are also in recession.
The G7 delegates in a joint statement vowed to avoid protectionism as they seek to stabilize the tottering world economy and financial markets and said stabilization of the world economy was their “highest priority.”
The global crisis “has highlighted fundamental weaknesses in the international financial system and that urgent reforms are needed,” the statement said.
US Treasury Secretary Timothy Geithner made his debut on the world stage, after taking office last month and launching a vast US financial stabilization plan that received a skeptical reaction in the US.
He vowed that his country, the biggest economy in the world and the source of much of the financial drama in recent months, would work with other nations for a consensus on reforms.
“We need to begin the process of comprehensive reform of our financial system and the international financial system, so the world never again faces a crisis this severe,” Geithner said after the talks.
“The key elements are to make sure that we’re making banks strong enough that they can be supportive of recovery,” he told reporters. “It will require ways to bring in private capital, provide public capital when that’s necessary and it’s going to require direct action to try to get credit markets working again.”
Geithner assured his counterparts that US President Barack Obama’s US$787 billion plan to resuscitate the economy, approved on Friday, would not violate in any way the US’ commitment to free trade.
Geithner, who was among friends and colleagues he had worked with from his days at the US Federal Bank, appealed to the “common imperative” to sustain open trade.