Uneasy global markets top worry for G7

Finance chiefs likely to exert pressure on China to let the yuan strengthen

WASHINGTON: With global economic growth waning and a credit crunch threatening, finance chiefs from rich nations were gathering on Friday to mull how to control strains in financial markets and keep expansion going.

Ahead of the Group of Seven meeting of finance ministers and central bankers, France called for more attention to be paid to the soaring value of the euro, which hit a lifetime high against the US dollar on Thursday. France worries euro strength will undercut European exports and slow growth there.

But the French call found scant support in Washington, where US officials stressed financial market turmoil will be the focus of the meeting between the United States, Britain, Canada, France, Germany, Italy and Japan.

Canadian Finance Minister Jim Flaherty said on Thursday common ground might be found by toughening up demands that China let its yuan currency rise in value faster, which could help ease the upward pressure on the euro.

A closing communique late on Friday will be followed by a special “outreach” dinner with officials from countries including China, Kuwait and Saudi Arabia that operate so-called sovereign wealth funds whose unregulated and large-scale investment activities make the G7 nervous.

That sets the stage for a weekend of sessions between big and small countries when International Monetary Fund and World Bank members hold their semi-annual meetings.

A key agenda item is hastening the IMF’s shift toward a stiffened surveillance role over currency exchange practices.

The heightened IMF role, sought by both the United States and Europe, should give the IMF a stronger hand in pushing China toward adopting a market-based value for its yuan, which could help shrink China’’s mountainous trade surpluses.

In an interview with Reuters on Thursday night, Flaherty said some G7 countries might push for harsher language urging China to revalue its currency.

“I expect we’ll have more pressure from the other market currency countries, especially with the euro being at a relatively high value now,” Flaherty said.

A high-value euro makes European exports more expensive in foreign markets while also making Chinese goods cheaper for European consumers.

Looming over the G7 gathering is worry that growth may be hampered by financial market upheaval, originating in US subprime markets where lax lending standards produced a flood of spotty home loans that were packaged into securities.

“Today we have entered a period of uneasy calm,” said Joaquin Almunia, the European Union’s economic and monetary affairs commissioner.

“Already it is clear that the economic outlook for the next two years appears less favorable than before the financial turbulence.”

Central banks have been forced to pump hundreds of billions of dollars into the global financial system to keep it from seizing up. Some markets, including the market for asset-backed commercial paper, remain under severe stress.

Bank of Japan governor Toshihiko Fukui said on Thursday after a meeting with US Federal Reserve Chairman Ben Bernanke that financial markets “are slowly improving” but problems remain.

“A prolonged slowdown in the U.S. housing market is a source of concern and raises uncertainty,” he said.