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Nickelless
Administrator
USA
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 Posted - 02/14/2009 : 01:15:14
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By Simon Kennedy
Bloomberg News
PARIS: The Group of 7, whose finance chiefs convene this weekend in Rome, is ceding its traditional power to rebuild the world economy to a broader body of governments that now wield greater sway over global growth.
As the U.S. Treasury secretary, Timothy Geithner, and the European Central Bank president, Jean-Claude Trichet, join their G-7 counterparts, it is the Group of 20 that occupies the vanguard responding to the financial crisis.
The shift in influence to the G-20, whose membership ranges from the United States to China, reflects the fact that industrial nations lack the resources to fix the world's economic problems alone. That curbs the G-7's scope to deliver initiatives this week, say economists and former officials.
"The world has changed," said Paul Martin, a former prime minister of Canada who attended G-7 meetings and helped establish the G-20 a decade ago. "The G-20 reflects the realities of the global economy. Its finance ministers are becoming the dominant policy-making body."
The G-7's finance ministers and central bankers are meeting on Friday and Saturday before releasing a statement. On the agenda are how to thwart protectionism, overhaul financial oversight and end what the International Monetary Fund calls a depression in advanced economies.
Limiting the G-7's scope to act is the fact that policy makers have given the task of rebuilding the world economy to the G-20, which was created after a spate of currency devaluations in emerging markets in the 1990s.
The G-20's increasing influence reflects how the current slump is being led by the major economies, pushing them to look beyond their ranks for help in ending it. That is a reversal from previous crises when the G-7 was in the driver's seat of the recovery effort.
The IMF predicts that advanced economies will shrink 2 percent in 2009. Still, the expansion of developing nations will keep the global economy growing at a 0.5 percent pace, it estimated last month.
China overtook Germany in 2007 to become the world's third-largest economy, new data showed last month, and in September passed Japan as the biggest foreign investor in U.S. government debt. China, Russia, Brazil and India together hold about 41 percent of global foreign-exchange reserves. Together, the G-7 countries produce only slightly more oil a day than Saudi Arabia.
The emergent power of the G-20 "is a recognition of new realities," said Joseph Stiglitz, a Nobel economist who teaches at Columbia University. "It's effectively recognition by the G-7 that they don't have the money. The money is in Asia, the Middle East."
Leaders from the bigger group met for the first time in November in Washington and released a string of directives on strengthening accounting standards and oversight of derivatives, hedge funds and debt-rating companies.
It is that manifesto rather than anything the G-7 has produced that is now garnering international attention. G-20 heads will meet in London April 2 to seek ways to carry it out.
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G-7 loses its financial savior status
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