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G7 powers to meet as oil prices smash new highs

01.01.70

WASHINGTON, April 16, 2006 (AFP) -
Finance ministers from the powerful G7 club of nations convene here this week to tackle headaches posed by surging oil prices and global currency rates as China's leader comes to town.
The Group of Seven ministers and central bank chiefs will meet Friday, before the World Bank and the International Monetary Fund hold their annual spring meetings over the weekend.
Reforms to make the IMF more representative of emerging players will also figure on the G7 agenda for Britain, Canada, France, Germany, Italy, Japan and the United States.
And the ministers are expected to debate debt relief for the world's poorest countries, as the World Bank and IMF prepare to cancel the crushing debts under an initiative pushed by the G8 -- the G7 plus Russia.
"As one risk factor (for the global economy) is crude oil prices, which remain at high levels, I will closely watch how each G7 country discusses the issue," Japanese Finance Minister Sadakazu Tanigaki said Friday.
"Global currency developments and interest rates will remain big issues in the G7," added Tanigaki, when asked whether the Chinese yuan's limited flexibility would be a topic at the meeting.
He said Japan would also press for reform of the IMF, as Tokyo pushes for the world financial watchdog to give Asia's rising economies a greater say in its running.
US Treasury Secretary John Snow, writing in the Washington Times on Friday, underlined that his colleagues must, in addition, intensify efforts to choke off the finances of extremist groups.
"Financial officials from all over the world recognize the horror of terrorism and are increasingly recognizing the critical role that we can and must play in combating the international scourge," he said.
"Those who reach for their wallets to fund terrorism must be pursued with equal determination as those who reach for a bomb or a gun."
The G7 ministers will have in hand the IMF's latest analysis of the world economy, which is due to be released on Wednesday and is expected to predict solid global growth this year of about five percent.
However, the IMF has warned that high oil prices are a growing danger not just for global growth but also for the heavy imbalances they are creating in national finances, not least in the United States.
In London, Brent crude futures have broken through 70 dollars a barrel for the first time, owing to tight supplies and to tensions over Iran's nuclear ambitions.
In a report ahead of the spring meetings, the IMF said Thursday that much of the cash bonanza enjoyed by oil-exporting countries was being recycled into US markets, driving up the US current account deficit still further.
The higher the deficit goes, the greater the risk of the dollar crashing, "which would push US interest rates up sharply and possibly lead to a recession", it warned.
For many in the United States, the deficit is being driven artificially higher by what they see as shady Chinese trade practices, such as a distorted exchange rate.
Chinese President Hu Jintao is due to meet US President George W. Bush in Washington on Thursday and is expected to get a grilling over a host of US trade complaints.
German finance ministry state secretary Thomas Mirow said that for the G7 powers, the soaring US deficit, coupled with groaning surpluses for China and oil exporters, translates into a "heap of crisis scenarios".
Mirow also indicated that a simmering row in the European Union could spill over into the G7, evoking "protectionist tendencies" as a likely topic of debate in Washington.
He said the tendencies in "certain European countries" as well as in the United States were another "risk" to global growth.

Expert opinion

Halter Marek

02.12.06

Halter Marek
Le College de France
Olivier Giscard dEstaing

02.12.06

Olivier Giscard dEstaing
COPAM, France
Mika Ohbayashi

02.12.06

Mika Ohbayashi
Institute for Sustainable Energy Poliy
Bill Pace

02.12.06

Bill Pace
World Federalist Movement - Institute for Global Policy
Peter I. Hajnal

01.12.06

Peter I. Hajnal
Toronto University, G8 Research Group