EU’s ‘big four’ speak as one ahead of G7 in Tokyo

The UK, France, Italy and Germany spoke as one this week (29 January) ahead of a meeting of finance ministers and central bankers from the group of seven industrialised nations.

Japanese Finance Minister Fukushiro Nukaga, who is hosting next week’s (9 February) G7 meeting in Tokyo, is expected to raise the reform of international institutions and co-operation among central banks in the crisis talks.

In a joint statement issued after their meeting in London this week, the leaders of the UK, France, Germany and Italy underlined their commitment to "an open global economy" and a reform of institutions, in particular of the International Monetary Fund (IMF).

The leaders stressed the need to "strengthen and clarify" the IMF’s responsibility to oversee macro financial stability. Part of the IMF’s wider role in maintaining economic order would be the development of an "early warning system" to avert crises.

Regulatory co-operation was also raised as a key principle underpinning global economic reform.

While leaders stressed that "primary responsibility for managing risk" still rested with "individual financial institutions and investors", they signalled a need to increase the flow of information between regulatory authorities within the EU and at international level.

The four leaders also asked credit-rating agencies to improve information on risks associated with structured products, signalling that failure to comply could lead to the creation of "regulatory alternatives".

Central bank governors will discuss their co-operation at next week’s G7 meeting, which would also include the US and Canada. Co-operation between central banks was stepped up last summer in the wake of the subprime crisis in the US.

An EU source said that co-operation between central banks, "with the exception of the UK" had thus far "worked well". The Bank of England came under fire for its delayed reaction to the subprime crisis last year, which was followed by the disastrous bail-out of mortgage lender Northern Rock.

The IMF this week (29 January) predicted further gloom, slashing growth forecasts in its quarterly update on the world economy. Eurozone growth for 2008 is now 1.3%, compared to 2.3% during 2007. US growth for 2008 is down to 1.5% from 2.2% in 2007.

The fund also predicted more trouble for banks. Deteriorating economic conditions, it said, could "exacerbate pressures on major institutions that have already suffered big losses from the subprime crisis".

The US Federal Reserve announced yesterday that in the fourth quarter of 2007 annual growth slowed to 0.6%. The Fed cut interest rates to 3% from 3.5%.

The UK, France, Italy and Germany spoke as one this week (29 January) ahead of a meeting of finance ministers and central bankers from the group of seven industrialised nations.