Euro zone debt woes to add urgency to Arctic G7

February 5, 2010
A summit is coming

A summit is coming

By Jan Strupczewski

IQALUIT, Canada, Feb 5 (Reuters) – Deepening woes about euro zone debt added urgency Friday to a meeting of G7 finance leaders in the Canadian Arctic that includes unique features like ministerial dog sledding and caribou dinners.

In Europe, policymakers scrambled to reassure markets about the stability of their 16-nation currency bloc as investors shed euro assets for a second day on fears about debt-laden member states like Greece and Portugal.

The sell-off comes as finance ministers and central bank governors of the euro zone’s top three economies — Germany, France and Italy — fly to meet their counterparts from the United States, Canada, Japan and Britain for the Group of Seven’s most remote and inaccessible meeting to date.

“The French have said they want to raise Europe (at the meeting),” one G7 official said Friday.

European Central Bank President Jean-Claude Trichet denied speculation in financial markets that the ECB might be planning emergency discussions this weekend over the euro zone crisis.

“No. Untrue,” Trichet said upon his arrival in northern Canada when asked about talk of an extraordinary ECB meeting.

Iqaluit, where the G7 officials are meeting Friday and Saturday, is the capital of Canada’s Arctic territory of Nunavut, three hours’ flight from Ottawa or Montreal. Blocky aluminium-clad buildings are set up on stilts because foundations cannot be dug into the permafrost.


Among the main issues on the table for the G7 ministers and central bank chiefs is the global push for financial sector reforms that was thrown into confusion last month by far-reaching proposals from U.S. President Barack Obama.

He called for limiting the size of banks, restricting proprietary trading and severing their ties to hedge funds and private equity, on top of his previous call for fees on big institutions to recoup the billions spent rescuing the sector.

Britain’s finance minister Alistair Darling questioned some aspects of the U.S. proposals, saying risky financial activity would simply shift from banks to other institutions, but he said it was important that the world agree quickly in areas where there is common ground.

“The risk is that in 2010, people think ‘OK, we’re coming through this, maybe we can put this off’. I don’t think we’ve got that luxury,” Darling told Canada’s BNN television.

Canadian Finance Minister Jim Flaherty said he expected “candid discussion” on bank reforms including the need for agreement on how much capital banks should set aside to cushion themselves against future risks.

Even as Europe falters, the delegates will look at how the global economy is recovering. Data on Friday showed the U.S. labor market improving slowly as the unemployment rate dropped to a five-month low although payrolls fell.

“From a European standpoint, allowing this situation (with Greece) to run on and letting markets keep speculating on what happens next is a major issue,” said Mike Moran, currency strategist at Standard Chartered in New York.

“We don’t believe Greece will be allowed to fail or leave the euro zone, but it’s one of those slow-burning issues. As we saw with subprime, that can quickly get out of hand.”

Canada, which raised many international eyebrows with its decision to hold the meeting in communications-light Iqaluit, has warned markets not to expect major decisions.

“This meeting will not revolve around negotiated communiques and scripted text. It will be a time for frank discussion and a collective determination to help put the global economy firmly on the road to recovery,” Flaherty said.

Also on the agenda will be the declining role of the G7 itself and its future as a discussion forum compared to the G20 group of industrialised and developing nations, which includes major emerging markets like China and Brazil.


Increasing globalization has raised questions on whether the G7, which cut its teeth on efforts to steer currency markets in the eras of Plaza and Louvre accords in 1985 and 1987, remains the right forum for currency discussions.

“It’s more fair to debate the yuan at the G20 instead of G7 meetings,” Japanese Finance Minister Naoto Kan told reporters before leaving for Iqaluit.

French Economy Minister Christine Lagarde said France wants the G7 to discuss the yuan which several countries say is kept deliberately undervalued by China. A euro zone document prepared for the G7 meeting said China’s yuan policy could lead to a new build-up of global trade and savings imbalances.

The G7 have long warned in communiques issued at the end of their meetings that excessive exchange rate volatility was a threat to growth and have also long called for an appreciation of the yuan to help ease global imbalances. This time, the G7 plans no communique — a reflection, some say, of its waning importance in a world with heavyweight developing nations.

Some G7 officials will start their meeting with a spell of dog sledding in bright, sunny weather at temperatures of around -15 degrees Celsius (0 Fahrenheit). A strong wind bites through down jackets, making the weather feel far colder.

Their appetites whetted by the cold, they will head to a working dinner of local specialties — Arctic char and roast caribou medallions.

((Reporting by Jan Strupczewski, Editing by Chizu Nomiyama tel +32 2 287 68 37, fax +32 2 230 55 73, e-mail:; RM: Keywords: G7/

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