UPDATE 2-G7 to press on with bank reforms, Japan escapes censure

Sat May 11, 2013 11:01am EDT

* G7 talks focus on reform of banking sector

* Japan escapes rap for weak yen, Germany says is watching

* UK's Osborne plays down differences on austerity measures

* Draghi says no call on central banks to do more

By William Schomberg and Gernot Heller

AYLESBURY, England, May 11 (Reuters) - Group of Seven finance officials agreed on Saturday to redouble efforts to deal with failing banks and gave a green light to Japan's drive to galvanise its economy.

British finance minister George Osborne said the finance ministers and central bankers meeting 40 miles outside London focused on unfinished bank reforms, with signs that plans for a euro zone banking union are fraying.

"It is important to complete swiftly our work to ensure that no banks are too big to fail," Osborne told reporters after hosting a two-day meeting in a stately home set in rolling countryside.

"We must put regimes in place ... to deal with failing banks and to protect taxpayers and to do so in a globally consistent manner," he said.

The emergency rescue of Cyprus after a near meltdown in March served as a reminder of the need to finish an overhaul of the banking sector, five years after the world financial crisis began.

Germany has come under pressure to give more support to a banking union in the euro zone. The plan could help strengthen the single currency area, but Berlin worries it may pay too much for future bank bailouts if it signs up to a scheme to wind up stricken lenders.

While the first step - to create a single bank supervisor under the European Central Bank - looks set to be in place by mid-2014, a second pillar, a 'resolution' fund to close failed banks, is in doubt. And there is little prospect that a single deposit guarantee scheme will ever see the light of day.

A senior U.S. Treasury official said the talks at the 17th-century Hartwell House zeroed in on the need not just for better bank supervision but also to clean up balance sheets so lending can pick up.

"There was a sense of urgency among the euro area participants," the official said.

German Finance Minister Wolfgang Schaeuble countered that the euro zone was no longer the main risk to the world economy.

As at previous international meetings, Japan escaped any censure for printing money on a scale that has pushed the yen sharply lower.

Osborne said the G7 - the United States, Germany, Japan, Britain, Italy, France and Canada - reaffirmed that fiscal and monetary policy should be aimed at domestic concerns, not currency manipulation.

"We will not target exchange rates," Osborne said. "I would say that the statement by the G7 of earlier this year was a successful statement and one that has been held to."

The yen hit a four-year low against the dollar on Friday , driven in part by Japanese investors shifting into foreign bonds, a move that had been expected since the Bank of Japan unveiled a massive stimulus plan.

But having urged Tokyo for years to do something to revive its economy, other world powers are not in a strong position to complain now that it is doing so. Then there is the fact that central banks such as the Federal Reserve and Bank of England have printed money in the way the Bank of Japan is.

Japanese Finance Minister Taro Aso said the G7 had levelled no criticism at Japan's monetary policy but Schaeuble said there had been "intense discussions" and that the situation would be monitored carefully.

GROWTH DEBATE

Debate has also heated up about the need for governments to ease up on austerity, something Germany, Britain and Canada view with caution but Washington, Paris and Rome favour.

Osborne said there was less disagreement about whether governments should focus on debt-cutting or growth-boosting measures than is commonly assumed.

"Everyone is clear that there needs to be credible medium-term fiscal consolidation ... We also agreed that there needs to be flexibility," he said. "Growth prospects remain uneven and we can't take the global recovery for granted."

But his suggestion before the meeting that it should consider what more monetary policy could do to support economic recovery appeared to fall on deaf ears.

"There wasn't any call to do more," European Central Bank chief Mario Draghi told reporters after the meeting.

"It is quite clear that all central banks have done a lot, each one within its own mandate. So (the meeting) was just taking note of this ... All of us have really been active."

Several officials from visiting delegations questioned why Britain had called the gathering just three weeks after they and others met at International Monetary Fund meetings in Washington, but Bank of England Governor Mervyn King said the informal nature of the discussions had paid dividends.

"Freed from burden to agree a communique, the principals engaged more with each than I can recall before and as a result genuinely made real progress in taking forward some of the questions and issues that are facing the G7," he said.

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Comments (1)
RusselFuture wrote:
It does seem curious that Japan’s aggressive currency manipulation – which is certainly successful so far – does not seem to generate any response from the characters who run the central banks. This seems curious, given the intense criticism of China, for its actions. What this highlights is that the whole G7 group is now so hyper-politicized, it is seriously dangerous. The continued game of trying to blame bankers for the actions of irresponsible governments and their overspending goes on without anyone speaking the obvious – the moneyprinting and zero interest rate policy (the “ZIRP”), is impoverishing savers while it rewards the very actions central bankers are supposed to oppose and guard against – the value-destruction of circulating paper currency. A group of merchants chosen at random could do a better job of safeguarding our national currencies, than this current group of G7 clowns. What is going on now is quite simply, criminal. The value of cash savings that took generations to accumulate, is being destroyed by the money-creation and the enforced near-zero interest rates. I hope I live long enough to see these arrogant clowns put on trial for their crimes. Their actions are not just wrong, but in fact, are terribly dangerous. The Yen could fall much, much further. Does making Japanese people poor, just before you hit them with a 10% national sales tax, really make sense? What will the Japanese consumer response be? They will cut back, just as the higher power bills and increased fuel costs – the rising import bill – start to cascade thru the economy. The trashing of the Yen by the Bank of Japan is idiotic. I am certain no “stimulus” will result in the domestic economy – not with the tax increases that are scheduled. And the US situation is even worse. American cen-bank stimulus is hurting the poorest very effectively. It is just nuts. The bond-buying is only making a few key groups very rich – at the direct expense of 150 million middle class Americans who now earn nothing on their invested savings! The ZIRP is madness, and is *not* on balance, stimulative. The G7 central bankers are acting unwisely. – Rus.

May 12, 2013 7:00pm EDT  --  Report as abuse
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