DRESDEN — Group of Seven (G-7) finance ministers and central bankers have their work cut out this week to revive stuttering global growth and defuse tensions over China’s growing clout.
Topping the agenda for the finance chiefs from the G-7 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 US is likely to use the talks, which will end on Friday, to press Europe to reach a funding-for-reforms deal with Greece. US treasury secretary Jack Lew said he feared a miscalculation could lead to a new crisis, which could have consequences for the wider world. He said Greece’s creditors might have to give some ground if its leaders took “the kinds of tough steps that they need to take”.
“The challenge for the Europeans, the political and economic institutions — the International Monetary Fund (IMF) — is to show enough flexibility.”
The host, Germany, has given the meeting in Dresden the title “Towards a Dynamic Global Economy”, but it and the US, Japan, Canada, France, Italy and Britain must also grapple with the rise of a power not even present: China.
German Finance Minister Wolfgang Schaeuble said last week that officials could talk informally about the increased importance of the Chinese yuan. The inclusion of the yuan in the IMF’s currency basket would mark another stage in China’s rise as a global player.
European G-7 members have signalled they are open to adding the yuan to the basket of currencies that make up the IMF’s Special Drawing Rights, a virtual currency that is used for lending to countries in difficulty.
The US and Japan are 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 70 years.
The IMF said on Tuesday that the yuan was no longer undervalued after its recent gains, but Beijing should quicken progress to a floating exchange rate.
Mr Lew said it was too early to say if China had permanently changed its ways.
He said the IMF might not be able to reach a decision this year about whether to add the yuan to its internal currency.
“The standard has to be what will they do when there’s pressure on the (yuan). For competitive purposes, will they continue to refrain from intervention?
“And … are they truly committed to having a market-determined exchange rate?”
While the Europeans are vying for commercial advantage in the world’s second-biggest economy, Washington sees Beijing 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.
Greek officials have said there might not be enough money to meet a series of June bills to the IMF totalling €1.6bn without outside help — raising the prospect of default.
“The notion that the risk is completely contained, that there’s no contagion, I think that it’s a mistake to think that a failure is of no consequence outside of Greece,” Mr Lew said.
“We don’t know the exact scope.”
Reuters