The meeting of financial leaders of the Group of Seven industrial powers that was held in Iqaluit, Canada, last week gave the impression that the G-7 has reached a turning point, in that the latest meeting did not release a joint communique for the first time in 12-1/2 years.
The G-7 meeting originates from an unofficial meeting of the Group of Five leading industrialized nations. This financial meeting boosted its presence in 1985, when the G-5 nations--Japan, Britain, France, the United States and West Germany--signed the Plaza Accord, in which they agreed to depreciate the U.S. dollar.
Since then, the G-7 meeting has maintained its position as the most influential international economic conference by repeatedly issuing communiques concerning exchange rate fluctuations and economic policy management.
But the G-7's roles started being handed down to the framework of the Group of 20 nations, which include China and India, after the global financial crisis in the autumn of 2008. The G-7 is expected to become an unofficial meeting at which ministers of leading countries can exchange views frankly.
But it will be difficult for the large G-20 to swiftly respond to emergencies, including rapid fluctuations in exchange markets. The roles of the relatively agile G-7 will remain important.
Risks linger in Europe
What the G-7 must do now is stabilize the global economy, which was hit hard by the financial crisis, and contribute to formulating a framework to prevent a similar crisis.
The global economy has emerged from the crisis, but there has recently been growing concern over the reemergence of economic and fiscal deterioration in some European countries, including Greece.
While industrialized countries are suffering from unemployment and worsening fiscal conditions, there are fears about the possible development of economic bubbles, which could burst, in high-growth emerging countries into which massive amounts of funds are flowing. The imbalance in the global economy attributable to emerging countries' export drives also needs to be corrected.
Given the circumstances, Canadian Finance Minister Jim Flaherty, who chaired the latest G-7 meeting, pointed out in his summary statement that G-7 countries should continue to employ stimulus measures and at the same time start envisaging exit strategies, thereby returning their crisis response to that mounted during normal circumstances, and restoration of fiscal health.
While this all makes sense, the G-7 meeting failed to spell out what each country should do in concrete terms.
Minister must know ropes
As for the issue of China's cheap yuan, financial chiefs and central bank governors of the G-7 countries simply reiterated what they said at the previous G-7 meeting: that it is desirable for China to pursue a flexible exchange policy. They did not show any determination to improve the situation.
As for the stringent financial regulations proposed by the administration of U.S. President Barack Obama, the G-7 countries also agreed to move in the direction of tougher regulations, though they did not come up with concrete measures in this regard. If the G-7 contents itself with being a mere talking shop, it will inevitably sink from view.
In many cases, the post of the Japanese finance minister, who attends G-7 meetings, has been filled by politicians who do not necessarily have much expertise in financial and fiscal matters and who tend to have relatively short terms in office, making it difficult for them to have in-depth discussions with experienced European and U.S. financial chiefs.
In the new G-7 era, the Japanese finance minister should be selected from among experts in economic policy and have abundant experience.
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