G7 Lives - Emerging Markets Beware

Finance ministers and central bank heads from the G7 ( for those of you who had already  mentally tossed the G7 on the scrap heap of history, that would be Canada, France, Germany, Italy, Japan, UK and US – the pantheon of the developed, emerging markets need not apply) concluded two days of meetings in Iqaluit. a remote village in the Canadian arctic. (Is there any other kind of village in the Canadian arctic?)  After considering budget deficit crises in Greece, Spain and Portugal and related stress on the euro, the attendees covered a varied agenda then revealed consensus on several items.

The G7 will: Support debt relief for Haiti;  Continue economic stimulus programs to combat unemployment and the threat of double dip recession, despite deficit concerns;  Support efforts to impose new rescue cost recovery levies on banks through the International Monetary Fund, thus reducing the ability of a bank to avoid any new tax by shifting borderless elements of its business to non-participating jurisdictions; and Continue to exist – that's right, for those of you who had doubts after Pittsburgh, who thought the more inclusive and representative G20 (including emerging market nations Brazil, China and India – actually that key word should be emerged markets)  was all that really mattered, the G7 isn't going anywhere just yet, although its focus may shift to more informal discussion.

Canadian Finance Minister Jim Flaherety noted the role of the  G7 economies in causing the most recent global recession and the role of the G7 in leading recovery plans in explaing the decision to stay in business.  French minister Christine Lagarde added, “ We were all unanimous”.  (OK, I chuckled too, but early stories carried an abbreviated quote, her point was that the tax had to be universal to avoid arbitrage).  So, the G7 ministers and bankers still think the group has a purpose, but what aren't they telling us?

Maybe they would miss the perks.  The meetings in Canada did include a dog sled ride. Not all that important?  Maybe its the fact that the G7 nations have significant common interests that are not shared, at least not to the same degree, with the entire G20.  Haitian debt relief might be a no-brainer, but will China, India  or Brazil really support an IMF levy on all banks even when banks in China, India and Brazil didn't have anything to do with mortgaged backed securities or a global real estate bubble.   Especially with the announced shift to a more informal approach that emphasizes discussion over communiques, don't be surpised if the G7 meetings devolve into strategy sessions – opportunities to plan a common approach on issues where the G7 doesn't fully agree with the rest of the G20 and particularly the emerging market nations, issues like greenhouse gas emissions, currency values controlled to support exports,etc.  For all we know, the G7 ministers are walking into the next G20 meeting with a plan to cram some Greek bonds down a reluctant China's throat.