G7 calls for urgent economic reform

14th February 2009, Comments 0 comments

The G7 called for ‘urgent reforms’ of the international financial system and reiterated a bleak outlook for the world economy, after fresh data showed the euro zone recession deepening.

Rome -- The world's richest nations called on Saturday for urgent reform of the global financial system and for commitments to safeguard free trade, as countries struggle with the worst economic crisis in decades.

Italy's Finance Minister Giulio Tremonti called for a "new world economic order" as he wrapped up the crisis meeting of finance leaders from the Group of Seven leading economies over which he presided.

In a joint declaration, the G7 called for "urgent reforms" of the international financial system and reiterated a bleak outlook for the world economy, after fresh data showed the euro zone recession deepening.

In a joint statement, the G7 delegates vowed to avoid protectionism as they seek to stabilize the tottering world economy and financial markets. Stabilization of the world economy was their "highest priority," they said.

The global crisis "has highlighted fundamental weaknesses in the international financial system and (shown) that urgent reforms are needed," the statement said.

US Treasury Secretary Timothy Geithner made his debut on the world stage on Saturday, after taking office last month and launching a vast American financial stabilization plan that received a skeptical reaction in the United States.

He vowed that his country, the biggest economy in the world and the source of much of the financial drama in recent months, would work with other nations for a consensus on reforms.

"We need to begin the process of comprehensive reform of our financial system and the international financial system, so the world never again faces a crisis this severe," Geithner told reporters after the talks. "The key elements are to make sure that we're making banks strong enough that they can be supportive of recovery. It will require ways to bring in private capital, provide public capital when that's necessary -- and it's going to require direct action to try to get credit markets working again."

Restructuring banks damaged by the credit crunch was the main problem facing governments, said Dominique Strauss-Kahn, head of the International Monetary Fund (IMF).

The G7 reiterated the view of several top delegates that protectionism -- when countries take measures that favor their own economies at the expense of others -- was a threat to stability.

The United States is among the countries that has prompted concern over protectionism due to a "Buy American" clause in a 787 billion dollar stimulus package that was passed by lawmakers late Friday, with the sensitive clause toned down.

"The G7 remains committed to avoiding protectionist measures, which would only exacerbate the downturn, and to refraining from raising new barriers" to business across borders, the joint statement said.

Geithner highlighted a line in the document that praised China for its "continued commitment to move to a more flexible exchange rate." China has been accused of letting its currency slip to protect the price of its exports.

The financial leaders from the G7 grouping of Britain, Canada, France, Germany, Italy, Japan and the United States plus Russia met amid mounting warnings of the talks' grave economic stakes.

Grim data on Friday showed that the euro zone economy slumped by 1.5 percent in the fourth quarter of 2008. The European Union overall and several individual EU countries -- including G7 host Italy -- are also in recession.

A grouping of 20 key advanced and emerging economies (the G20) is due to meet in April to discuss financial reform -- reflecting the growing clout of rising economic powers such as China.

"We will work closely with our colleagues in the G7 and the G20 to build consensus on reforms that match the scope of the problems revealed by this crisis," Geithner said.

Tremonti said a so-called set of "legal standards" discussed in Rome would be presented to the G20 and a summit of the Group of Eight (G8) world powers in July.

Roland Lloyd Parry/AFP/Expatica

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