G7 to press on with bank reforms, gives Japan free pass


Group of Seven finance officials agreed on Saturday to press on with measures to deal with failing banks and gave a green light to Japan's efforts to galvanize its economy.

British finance minister George Osborne said the finance ministers and central bankers meeting outside London focused on unfinished banking reforms.

Continue Reading Below

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

"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 40 miles outside London.

"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.

Germany has previously 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 failing banks.

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 at the end of the meeting at the 17th-century Hartwell House. "I would say that the statement by the G7 of earlier this year was a successful statement and one that has been held to."

Some countries are concerned Tokyo is engineering an export-led recovery that could hinder other regions' ability to grow.

The yen hit a four-year low against the dollar on Friday, beyond the psychologically important 100 yen mark, 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.


Debate has also heated up about the need for governments to ease up on austerity, something Germany, Britain and Canada view as a mistake but Washington, Paris and Rome are in favor of.

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.

Several officials from visiting delegations questioned why Britain had called the meeting so soon after the IMF discussions 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 communiqu��, 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 question and issues that are facing the G7," he said.

(Additional reporting by Gernot Heller, David Milliken and Leika Kihara.; Writing by Mike Peacock; Editing by Mark Potter)