ROME, Feb 10 (Reuters) - The launch of a new relationship with Washington is the best hope for something solid out of this weekend’s gathering of G7 financial leaders in Rome, with officials signalling little significant is likely to emerge on actual policy.
The Group of Seven meeting on Feb. 13-14 has been largely overshadowed by the broader Group of Twenty advanced and emerging nations which have the specific remit to tackle the global financial crisis and prevent a repetition.
With regulation and financial reform proposals in the hands of the Financial Stability Forum and the G20, the Rome meeting of finance ministers and central bankers is likely to focus on economic prospects and the dangers of state protectionism.
Accusations have flown among EU leaders this week over French aid for carmakers and the group will likely repeat warnings not to break a global consensus on free trade due to governments’ desire to shield home-grown business.
New U.S. Treasury Secretary Timothy Geithner will naturally be the main focus of attention, with the rest of the G7 hoping to see signs of a more multilateral approach after eight years of go-it-alone Republican rule they often found frustrating.
“The Bush administration tended to ignore international organisations, now things will have to be different,” a European G7 official said.
However, with Geithner still putting together his team the Rome G7 may be too soon to get a clear picture of any change in style or substance on the part of the new administration.
Stimulus plans, how to get banks lending again and what to do with their toxic assets are sure to be a key topic of discussion, but situations and ideas differ widely and the G7 is not considered the forum for any detailed common prescription.
“I don’t think we should look to the G7 this time for any big new initiatives, I think this is more a get-to-know each other meeting,” one G7 source told Reuters.
Unlike in the past, the G7 — the United States, Japan, Germany, France, Britain, Italy and Canada — have not invited the largest emerging economies to join them, apparently because they will all be present at the G20 in England next month.
Russia, on the other hand, will be attending, along with the heads of the European Central Bank, the International Monetary Fund, the Organisation for Economic Co-operation and Development and other international bodies. [ID:nL5229613]
Yet as the world grapples with the worst economic slump since the great depression there is a growing consensus that the G7, which excludes massive economies like China and India, is no longer the right forum to decide on global solutions.
Sources say the G7 is unlikely to spend much time on foreign exchange rates, probably limiting its official statement to a reiteration that currency volatility is undesirable and that the absent Chinese should do more to allow the yuan to appreciate.
Yen strength and sterling weakness may be discussed, but both have abated in recent weeks and neither seem likely to feature in the final communique. Sterling has rebounded 9 percent against the euro this year. [ID:nL9699494] [ID:nT252580]
Financial Stability Forum chief Mario Draghi will address the G7 on Saturday and probably report on the state of intense negotiations over which new nations can join the body whose role in re-writing financial rules is being progressively upgraded.
Emerging economies are jostling for a seat on the FSF, which is attended by representatives of finance ministries, central banks and regulators, and seems likely to be transformed into a fully fledged institution with its own seat and secretariat.
China, India and Brazil are all pressing for representation but so for example is Spain, a major economy that is in neither the G7 or the G20, and South Korea, which takes over the G20 presidency from Britain next year: [ID:nLG147640].
South Korea’s chief G20 envoy Il Sakong told Reuters the issue must be resolved before the G20 summit in London in April, and one financial source said Draghi may even be able to announce the new members to the G7 this weekend.
Italy has abandoned earlier promises its G7 presidency will re-write the global financial architecture and is instead pushing for adoption of a more modest “legal standard,” something Italian Treasury documents describe as “the minimum rules on transparency and propriety of international business which the whole international community is expected to accept.”
This will be discussed over dinner on Friday evening, but seems to add little to norms already adopted by the 30 OECD countries and the project may also be seen as duplicating the task of the FSF.