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G 7 Ministers address world financial markets' stability

Friday, February 9th 2007 - 20:00 UTC
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Europe's concern with the stability of world financial markets is one of the main issues to be addressed by the seven most industrialized countries Finance ministers meeting, G-7, which is meeting in Germany and will see China participate for the first time in the main debates.

But differences between G7 members such as the low value of the Japanese Yen and concern over the transparency of hedge funds, anticipates that the final communiqué won't necessarily be very conclusive. Germany that currently presides G 8 (which includes Russia but is absent of G 7) would like to tackle the hedge funds issue, a market that has ballooned in the last ten years with increasing risks for financial stability. However even when United States seems to be willing to address the issue and is not contrary to demanding greater transparency for the hedge funds market, Britain does not follow. European leaders are concerned that the Yen has recently fallen strongly against the euro and the dollar. Some commentators say there is a suspicion that Tokyo has been deliberately keeping its currency weak, through the use of low interest rates, to make Japanese exports more competitive. The EU is also concerned with the so called "carry trades", which consists in taking loans in the Japanese market (where the basic rate stands at 0.25%) and reinvesting in other currencies at higher yields. United States is growingly concerned with the Chinese Yuan and the growing trade and economic influence of Beijing. This controversy will clearly be appreciated because for the first time China has been invited to participate in the debates about the development of the world economy and exchange rates, a privilege not even extended to G 8 member, Russia. Germany that is hosting the meeting favors China's participation but is not inclined to institutionalize the increase of G 7 membership. However Russia and the emerging economies of Brazil, India, Mexico and South Africa have been invited to a meeting with G 7 in the framework of the two days discussions. This meeting will consider the possibilities of promoting the development of bond markets with issues in the local currencies of these countries in an attempt to make them less vulnerable to external financial shocks. G 7 will also be talking about Africa and the growing influence of China and India which are penetrating the continent with cheap loans that could help surge national debts when G 7 members are trying to reduce that heavy burden. A particularly irritating point is the fact that China's loans come with no strings, while G 7 has a policy of linking credit to good governance and thus greater corruption control.

Categories: Economy, International.

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