Sunday, October 03, 2004

When the G7 Talks, Is Anyone Listening? No... We Have Lost Our Balls!

Sat Oct 2, 4:18 PM ET Business - Reuters
By Glenn Somerville

WASHINGTON (Reuters) - The tiny but elite club of Group of Seven finance chiefs seems to have hit the limits of its influence on the two top economic issues of the day -- oil prices and the emerging powerhouse that is China.

[My Comment]
Yep, keep refinancing your homes and obtaining ridiculous interest only mortgages...Who do you think are buying your mortgages: US Companies or Far East Companies?

It was clear after a gathering on Friday of G7 finance ministers and central bankers that the officials had little more than words to use against soaring oil prices and China's tight currency peg.

Analysts said this underlined the fact that the G7 -- the United States, Britain, Canada, France, Germany, Italy and Japan -- no longer controls the lion's share of output that once made its dictates tantamount to law for policy-makers.

"The fact is the center of global economic activity has shifted away from the G7 and that will be increasingly the case as we go forward," said economist Mark Zandi of

He said a growing proportion of economic production will shift to Asia, Eastern Europe and other regions with little or no G7 representation.

"The group is going to have to evolve and bring in other voices or else it's simply no longer going to be an effective voice in global policy-making," Zandi added.

To some extent, the G7 has been trying to do that.

Russia has a limited participation in the coterie and the group invited top Chinese officials to Washington for a discussion over dinner on Friday night about currency policy and broader economic issues.

However, China -- the world's seventh-largest economy -- showed little sign it wanted formal membership in the club, even if it were offered.


"We have no immediate plans to join the G7," China's Finance Minister Jin Renqing told a small group of Chinese reporters on Saturday.

After meeting with the United States this week, China said it was moving toward a flexible currency but offered no timetable and said it would move at its own pace.

Jim O'Neill, chief global economist for Goldman Sachs International, said G7 members were in an awkward position since they were dealing with events beyond their control.

"In this peculiar time of our history, the biggest issues involve those outside the G7," O'Neill said.

"G7 participants themselves must know that there is a limit to how many of these statements they can release without achieving their goals," he added.

The election-bound Bush administration is pushing especially hard for China to act on currency reform, in part because of domestic politics.

U.S. manufacturers claim the yuan lends Chinese imports an unfair price edge, and Treasury Secretary John Snow repeated on Friday he wants China to move "as soon as possible."

Costly oil is potentially a bigger and more universal problem for the Group of Seven economies and this weekend the ministers renewed a push for producers to "to provide adequate supplies to ensure that prices moderate."

However, the group has little or no leverage here either.

Since it made a similar call to oil-producing nations in May, prices have risen some 20 percent and -- as the G7 ministers met on Friday -- cracked the $50-a-barrel level.

Aside from the fact that major oil producers are outside the G7, the bulk of additional oil demand is coming from developing countries.

The International Monetary Fund (news - web sites) estimates up to half of this year's increased demand comes from China and 8 to 10 percent from India and elsewhere.


"We really are up against the wall on this issue of supply," said economist Sung Won Sohn of Wells Fargo Bank in Minneapolis. "Supplies are limited but it's something people don't want to admit and demand is rising from China at an exponential rate and will continue to do so."

Some observers have suggested that one solution for the G7's waning influence would be to elevate the wider and more inclusive G20 grouping that includes developing giants such as China, India, Russia and Brazil as well as the G7 members.

The G20 membership represents two-thirds of the world's population, 90 percent of its gross national product and accounts for 80 percent of global trade. Additionally, China takes up the presidency of the group next year from Germany.

Whether the G20 will take on the G7's mantle is open to question, but analysts are convinced that some evolution away from the core group, which originated in the mid 1970s, is inevitable as emerging nations pick up their pace and seek their place at the policy-making table.

"It's so increasingly obvious that it's going to happen that it's primarily a question of how and how fast you get there," Zandi said.