G7 Accused of Being ‘Asleep at the Wheel’

(Edmund Conway — The Telegraph)

The Group of Seven leading finance ministers has been accused of being “asleep at the wheel” after its closely-watched communique on the state of the world economic system merely repeated the same exhortations it has used at summit after summit.

The G7 held its spring meeting in Rome over the weekend but made only minor changes to its statement, sparking fears that ministers have run out of new ideas with which to tackle the global financial crisis.

The statement warned of the risks inherent in protectionism, and that further drastic measures were needed from governments around the world to bail out their banking systems.

But despite hours of discussion at the meeting explicitly about the financial crisis, the ministers could not agree on a firm commitment to take further measures, such as setting up a system of bad banks to absorb toxic assets.

Simon Johnson, former chief economist at the International Monetary Fund, now a professor at MIT, said the G7 was “asleep at the wheel”, adding: “[The meeting] was a great opportunity for this group of leading industrial countries to reassert its leadership in the global economy.

“Instead, all we received officially is a communique that blandly restates what these documents always say.”

Mr Johnson had warned that a number of countries including Ireland were at increasing risk of defaulting on their national debt – something hinted at by the relentless increase in the credit default swaps on sovereign debt – a means of insuring against the likelihood of countries failing to pay their debts. Read more here.

Zoellick Faults G-7, Calls for New Order

(Wall Street Journal)

World Bank President Robert Zoellick called Monday for expanding the Group of Seven industrialized nations to include major developing countries, saying the current world leadership structure is ill-equipped to deal with global crises.

“The G-7 is not working. We need a better group for a different time,” he said.
Laying out a broad vision for a “new multilateralism,” Mr. Zoellick pushed for greater cooperation in everything from financial and economic issues to energy and trade. “Just as the crisis has been international because of interconnectedness, the reforms will need to be multilateral,” he said.

The new approach “must build toward a sense of shared responsibility for the health of the global political economy,” he said in a speech here to the Peterson Institute for International Economics. “This means, chiefly and critically, that it must involve those with a major stake in that economy, those willing to share in the responsibilities along with the benefits of maintaining it.”

Speaking in the run-up to the G-7 summit and fall meetings of the World Bank and International Monetary Fund later in the week, Mr. Zoellick said the G-7 is unwieldy and has put a priority on “ceremony over policy.”

The G-7 should be doubled in size to include rising powers such as China, Russia, Saudi Arabia, Brazil, India, Mexico and South Africa, Mr. Zoellick said. Along with the G-7 countries of the U.S., U.K., France, Germany, Italy, Japan and Canada, the new group would account for over 70% of the world’s gross domestic product, 62% of its energy production, as well as the biggest greenhouse-gas emitters and development-aid donors.

Instead of becoming merely a G-14, the new “steering group” would have a more flexible makeup and coordinate more actively with public and private institutions, he said. Read more here.