London, 8 February 2010

The weekend meeting of G7 finance ministers and central bankers was the non-event that most had anticipated. For the record, though, there were four main talking points.

First, the EU countries sought to reassure the other G7 members (and the markets) that Greece would be able to sort out its fiscal crisis, but they failed to say anything new.

Second, G7 officials reiterated their general support for some sort of levy on the banks that might be used to pay for future bailouts. As we discussed in our G7 preview, the G20 has already asked the Financial Stability Board (FSB), based in Basle, to address the risks posed by “too-big-to-fail” financial institutions. The FSB will publish an interim report following the G20 summit in June, but it is not due to make formal recommendations until shortly before the G20 summit after that in October. More pain is coming for the banks, just not yet.

Third, finance ministers agreed it was too soon to withdraw fiscal stimulus, while acknowledging the importance of bringing deficits back under control eventually (frankly, what else would you expect them to say?). Central bankers added nothing on their exit strategies.

Finally, there was nothing new on currencies. As expected, there was no formal communiqué. Officials simply referred back to the last statement, which contained the familiar (and toothless) language about the undesirability of "excess volatility and disorderly movements in exchange rates".

That statement also welcomed "China’s continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the renminbi in effective terms". Ironically, the renminbi is heading in the right direction in these terms (i.e. on a trade-weighted basis), but only slowly and only because of the de facto peg to the appreciating dollar. Neither the G7 nor China are keen to make a big deal of this at the moment. As Chinese policy is of course made in Beijing, harsh words from the G7 would make no difference and might actually be counter-productive.

Overall, no harm done, but no real progress either.

Ends --

Julian Jessop (Chief International Economist), Capital Economics Ltd

www.capitaleconomics.com