Paris - A meeting of Group of Seven finance
chiefs on Friday will discuss the struggling world economy and progress in
regulating the financial sector but a coordinated action plan to calm markets
is unlikely.
Delegates at the one-day gathering in the Mediterranean port
city of Marseille will seek to emphasise their commitment to preserving the
fragile global recovery while avoiding promoting a one-size-fits-all approach,
G7 sources say.
Host country France is expected to indicate that different
responses are appropriate in different countries to the latest crisis of
confidence rocking world markets.
"This is not a G7 where we are expecting to prepare a
formal communique," a French source said. "We are sticking to the
blueprint of recent G7 meetings, which have been informal ones."
Growing fears of a tip back into recession are piling
pressure on the G7 finance ministers and central bank governors to agree to
moderate austerity drives in some rich economies and keep monetary policy
ultra-loose.
France is chair this year of both the Group of Seven major industrialised economies and the wider Group of 20, which must respond to sharp market sell-offs in August that betrayed high anxiety among investors over the eurozone's debt crisis and US economic downturn.
Sense of urgency
Fears the global economy may have entered its most difficult
period since the collapse of Lehman Brothers has injected urgency into Friday’s
talks but the sense of purpose evident in 2008 and 2009 is not yet evident.
Gavin Friend, a strategist at National Australia Bank in
London, said the G7 was unlikely to produce a grand plan but market
expectations were running so high that a failure to come up with a weighty
statement could disappoint.
"This meeting comes at a critical time," he said.
While Europe wants to keep its commitment to austerity, the
United States is closer to the International Monetary Fund’s position that
fiscal stimulus is needed.
President Barack Obama is due to announce a big job-creating
package on Thursday.
A Canadian official said on Tuesday that loosening austerity
measures could ease short-term recession risks but pruning sovereign debt was
the top goal. He said if there were to be any additional stimulus spending, it
would be nowhere near the size of the 2008 round of globally coordinated fiscal
stimulus.
Britain, meanwhile, is sticking fast to its tough austerity
programme.
International Monetary Fund chief Christine Lagarde has
called for a recapitalisation of European banks but sources said eurozone
governments have no plans to inject any further capital into banks over and
above the money earmarked for the financial sector in emergency loan programmes
to Greece, Ireland and Portugal, sources said.
With Asian economies deeply concerned about the West's debt
crisis and slow growth, Bank of Japan Governor Masaaki Shirakawa said on
Wednesday eurozone debt would be high on the G7 agenda.
"I presume Europe’s sovereign problems will have a
prominent place on the G7 agenda," Shirakawa said, noting the whole world
was at risk if Europe’s debt woes destabilise its banks.
A source in Brussels said the G7 would likely agree to keep
monetary policy accommodative, slow fiscal consolidation in states where that
is possible and implement structural reforms.
"The mood is not for finger-pointing, but what we can
do together to address the issues, that have become incredibly more
complicated," the source said.
The G7 may also point to the need for a "rotation of
growth" - that when developed countries slow down, emerging economies like
China pick up the slack. That could mean a call for economies with large
current account surpluses to increase domestic demand and allow their exchange
rates to appreciate.
Currencies are bound to be discussed after the Swiss
National Bank shocked markets by setting an exchange rate cap on the soaring
franc.
Japan's new finance minister Jun Azumi made clear on Monday
that Tokyo was far from comfortable with current yen levels and said he would
seek to convince G7 finance chiefs that a strong yen was detrimental for the
world economy as well as Japan's.
Three sessions of talks in Marseille will focus on the
global economy and financial regulation, including discussion of the health of
Europe’s banking system.
No final communique will be issued, but the talks will wrap
up with a news conference at around 10:00 p.m.
The first session of talks in Marseille will be a debate on
financial regulation, including a discussion of the health of the banking
system in Europe and elsewhere, introduced by future ECB chairperson Mario
Draghi, who also chairs the Financial Stability Board tasked by the G20 with
steering banking reform.
A session on the global economy will discuss recent events,
including the downgrade of the US credit rating and the eurozone’s July 21
crisis package to strengthen its bailout fund. it will also discuss global
macroeconomic coordination.
A working dinner will include finance ministers, central
bank governors and heads of global financial institutions.