'Twas the night before G7: The Urban Dirt take

Alistair Darling, the Chancellor, yesterday called on his G7 counterparts to forge a “quick” deal to boost the transparency of global financial institutions.

But as he toured the old trading floor of the Tokyo Stock Exchange, illuminated by electronic displays of violently plunging Japanese shares, Mr Darling scotched hopes that the world’s richest nations would agree on any concerted bailout for markets ravaged by the sub-prime fallout.

Greater powers for the International Monetary Fund and measures to improve credit-rating agencies were, he said, “absolutely important” for governments across the world.

Later, however, he downplayed prospects that the G7 meeting would result in any decisive move, bemoaning the fact that the necessary international agreements “take far too long”.

As the G7 finance ministers sit down to discuss a world in deepening financial turmoil, and with its largest economy sailing close to recession, Mr Darling said that the meeting would focus on giving the financial markets a better early warning system of impending crises.

“It is quite clear that some of the problems that have arisen could have been prevented,” he said.

Echoing the comments of his Japanese counterpart, Mr Darling said that central banks across the world were taking decisions that were right for their respective countries. “The first thing is that conditions in different countries are not the same,” he said. “The actions that the US Federal Reserve and President Bush have taken are appropriate to the US. Other countries are not in that position and will take appropriate action for their own economies.”

If Mr Darling’s hopes for today’s G7 meeting appeared heavily muted, he was not alone.

The IMF last week slashed its forecasts for global growth this year and most governments can see the need for a display of unity at a potentially transformational time. But finance ministers have made it clear over recent weeks that there is only limited common ground for today’s meeting.

There is plenty of tension in the air over the effects of a plummeting US dollar, and there is, say sources at the Japanese ministry of finance, an undercurrent of feeling that the US should solve the sub-prime debacle on its own.

The German and Italian ministers of finance are expected to lead calls for fiercer rules on banking risk management and capital adequacy – calls patently aimed at Wall Street.

The recently mooted idea of using co-ordinated tax cuts as a form of economic stimulus, for example, has also caused a noisy split of opinion, and thought of a concerted monetary response has been undermined by conflicting inflationary pressures in Europe and Japan.

The only glimmer of hope of some flexibility on the rate-cutting issue was offered on Thursday by Jean-Claude Trichet, president of the ECB, who acknowledged only that economic uncertainty was “unusually high”.

The problem, say observers, is that if this is indeed a G7 meeting at the crossroads then Japan offers very little as host of the event. Fukushiro Nukaga, Japan's finance minister, spoke yesterday of the need to work together to stabilise financial markets but his is an economy that took 14 years to recover from financial crisis and may now be the first of the G7 nations to tumble back into recession.

When it was suggested to Mr Darling that the world might have something to learn from Japan’s experience dealing with financial crisis, the question elicited a careful snigger. Japan’s own government is in unprecedented political chaos, the country’s second-biggest city, Osaka, is rumbling towards bankruptcy and Mr Darling’s visit to the Tokyo Stock Exchange unwittingly illustrated the weakness of the world’s second largest bourse: a technical glitch closed down afternoon trading in one of the market’s most important futures contracts.

Coupled with Japan’s decline is the rise in global diplomatic importance of Beijing.

The one area where Japan may provide serious leadership, however, is in efforts to launch a multibillion-dollar climate change fund. Along with Mr Nukaga and Mr Darling, US Treasury Secretary Henry Paulson completes a trio of leaders who believe that the G7 should help developing nations invest in cleaner technologies as their economies grow. The issue, said Mr Darling, would be of “critical importance” on the G7 agenda.

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