Little more than a gentlemen’s club in recent years, G7 finance ministers and central bankers have their work cut out this week to revive stuttering global growth and defuse tensions over China’s claims to economic power.
Topping the agenda for the finance chiefs from the Group of Seven industrial nations is how to keep a faltering global recovery on track as the threat of a Greek default, rising oil prices and bond market turmoil fuel investor nervousness.
The United States is likely to use the talks, beginning late on Wednesday and running through to Friday, as an opportunity to press Europe to reach a funding-for-reforms deal with Greece, an official close to the discussions said.
“I would expect the Americans to put pressure on the Europeans in Dresden about Greece,” the official said.
“The Americans are stressing the geopolitical risks and telling us we have to find a solution, that we cannot really put the euro area and Europe at risk because of Greece.”
Hosts Germany have given the meeting in Dresden the heading “Towards a Dynamic Global Economy”, but they and officials from the United States, Japan, Canada, France, Italy and Britain must also grapple with the rise of a power not even present: China.
German Finance Minister Wolfgang Schaeuble told Reuters last week that officials could talk informally at the meeting about the increased importance of the Chinese yuan.
The inclusion of the yuan in the International Monetary Fund’s currency basket would mark another stage in China’s rise as a global economic player, requiring the United States to accept a dilution of its power in international finance.
SOFT POWER
Having ignored U.S. urgings not to sign up to a China-led development bank, European G7 members have signaled an openness to add the yuan this year to the basket of currencies makes up the IMF’s Special Drawing Rights (SDR) — a virtual currency that defines the value of IMF reserves, used for lending to countries in financial difficulty.
The United States and Japan are again more cautious.
Including the yuan in the basket would increase China’s influence at the IMF – an institution Washington was instrumental in designing and through which it has projected ‘soft power’ for the last 70 years.
The yuan, also known as the renminbi, is already the world’s fifth most-used trade currency. Beijing has made strides this year in introducing the infrastructure needed to float it freely on global capital markets.
A senior U.S. Treasury official said on Tuesday China’s currency liberalization plans were welcome and would be needed before the yuan was able to join the IMF currency basket.
While the Europeans are vying for commercial advantage in the world’s second biggest economy, Washington sees Beijing also as a strategic challenger that may not feel bound by rules written by the West.
Greece, which is scrambling to strike a deal with its international lenders before an IMF loan falls due on June 5, poses a more pressing problem.
A senior U.S. Treasury official said Washington would emphasize the need to find a pragmatic solution. Failure could have unpredictable consequences for the European and even global economies, said the official, who spoke on condition of anonymity.
REUTERS
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