The G7 and the "spirit of 2008"

Here’s how international finance ministers’ meetings like the G7 usually work: the ministers, central bankers and a few other VIPs like the head of the International Monetary Fund get together in a room. Usually one without windows. They each read out a pre-prepared opening statement, each of which can last 10 or 20 minutes. That takes up so much of the meeting that they have only a short time left to, well, debate and negotiate.

The so-called sherpas – senior officials who sit in the meetings representing each country – have usually pre-written a communiqué to be issued at the end of it all, and because there’s so little time for genuine debate, the content often remains unchanged.

That, of course, makes it almost impossible to achieve genuinely ground-breaking international agreements on the economy. For instance, before the financial crisis it was clear to all finance ministers that there were deep problems with the structure of the global economy which needed to be addressed. And yet summit after summit went by, all of them failing to deal with these imbalances.

It’s only very rarely – in times of crisis, generally speaking – that the rulebook I’ve spelt out above gets thrown away. That’s what happened back in autumn 2008: as the world stood on the brink of financial disaster, ministers (meeting this time at the IMF) threw away the pre-written communiqué, dispensed with the pre-written statements and got down to business. They had a stern discussion about the risks the world economy was facing and came up with a short, to-the-point statement committing to nationalise their banks as need be. At the time, it was revolutionary.

And it was this “spirit of 2008” that the Chancellor and Bank of England Governor were trying to summon up here at the G7 meeting in Hartwell House in Buckinghamshire this weekend – only without the immediate crisis. They made the conscious decision of doing away with the communiqué and the long opening statements, and, said Sir Mervyn King: “I can’t recall another G7 where the atmosphere was so productive – there was a genuine exchange of views, and people really engaged. As a result we made real progress in taking forward the arguments.”

The arguments in question mainly focused around three areas: currency policy, bank resolution (in other words what to do when a bank collapses) and tax avoidance/evasion. It is on the latter of these that perhaps the most progress was made. The Japanese and Germans had hitherto been quite resistant to a new scheme championed by the UK which automatically shares information on tax and individuals’ and companies’ accounting data between countries, but according to officials they displayed more willingness to sign up to such a scheme.

But cheering as it is that ministers have made some progress behind closed doors on tax, there are other deep-seated issues that remain. Central banks around the world have pumped an unprecedented amount of cash into the world’s financial veins; they have conducted fiscal easing on a significant scale. And yet, despite five years of extraordinary measures, there are still large parts of the world which remain trapped in stagnation: the UK among them. More worryingly, no-one really knows why this is, or indeed what to do to rectify this. If it weren’t so tragic, you’d call it a conundrum. And it will take more than a 24 hour G7 meeting to sort it out – communiqué or no communiqué.