G7 finance ministers gather in Washington today for what is seen as the most important meeting in the group’s history, as they struggle to find ways of containing the spreading financial and economic crisis. Underscoring the global dimensions that the crisis has now assumed, the G7 ministers will tomorrow hold a special meeting with finance ministers and central bank governors from the G20 “systemically important” emerging economies.
There is a great pressure on the G7 to take initiatives, as stock markets around the world continue to tumble, and confidence to evaporate, amid growing signs that the US economy will fall into recession this year and that other major economies could register zero growth. Fears of unemployment are also mounting in many countries. US Treasury secretary Henry Paulson has this week sought to quash hopes that the G7 finance ministers can come up with any kind of rescue plan. Treasury undersecretary for international affairs David McCormick said the meeting would be “heavily focused” on financial market disruption.
The finance ministers’ meeting is overshadowed to some extent by speculation that a special summit meeting of leaders of the G8 (G7 plus Russia) could be held as early as next week. This would debate emergency measures for dealing with a crisis that could have global social as well as financial and economic repercussions.
French president Nicolas Sarkozy has called for a special G7 heads of state meeting. Italian prime minister Silvio Berlusconi said Bush suggested the meeting should take place next Tuesday, a report yesterday by Italy’s ANSA news agency said, although a White House spokesman later denied that the meeting would be held on that day. In line with the trend towards concerted responses to the crisis, the IMF and the Financial Stability Forum (FSF) yesterday co-sponsored a meeting in Washington with senior officials from central banks, finance ministries and regulatory agencies from the G20 group of “systemically important” emerging economies.
“Our discussion provided an opportunity to review the main challenges and risks faced among mature financial markets and to analyse the impact and key transmission channels to emerging markets,” said IMF first deputy managing director John Lipsky. FSF chairman Mario Draghi added that “we will intensify our cooperation with the IMF and G20 in building a multilateral approach to systemic reform.”
Further underscoring the seriousness of the situation, US president George W Bush will meet the G7 finance ministers and central bank governors tomorrow morning at the White House. International Monetary Fund managing director. Dominique Strauss-Kahn and World Bank President Robert Zoellick will also attend the meeting. The G7 will also meet with the G20 tomorrow.
Hopes that Europe would present a united front at today’s meeting of G7 finance ministers were receding last night, in the wake of the co-ordinated rate cut by the Bank of England, European Central Bank and US Federal Reserve. The UK had urged the leaders of other G7 nations – Canada, France, Germany, Italy, Japan and the US – to follow its lead in issuing a temporary £250 billion guarantee of banks’ new short- and medium-term debt issuance in order to unlock the interbank lending market. The move came as part of a dramatic intervention by the UK authorities to recapitalize the country’s biggest banks by injecting up to £50 billion and taking an equity stake.
However Jean-Claude Juncker, who chairs the Eurogroup of eurozone finance ministers that includes France, Germany and Italy, said each country should choose its own way of tackling the financial market crisis. “This is a serious package the British have put together, it’s impressive. We welcome what the British did, but we think that each member state of the EU should have the privilege of choosing its own means and instruments,” he said.