ESSEN, Germany, Feb 10: World finance leaders wrapped up a two-day meeting here on Saturday, papering over rifts that had opened up over the weakening yen and giving a generally favourable assessment of the outlook for the global economy.

After two days of talks in the historic Villa Huegel mansion, Group of Seven (G7) finance ministers and central bankers struck what appeared to be a somewhat uneasy compromise on the yen, agreeing not to single out the weak Japanese currency in their final statement as a threat to global growth.

Instead, they pointed the finger at China, insisting that greater flexibility of the yuan was needed to re-balance the Chinese economy and put the global economy as a whole on a more stable footing.

The world’s seven richest nations -- Britain, Canada, France, Germany, Italy, Japan and the United States -- also made slightly more headway on the question of hedge funds, another key issue that had previously divided the bloc.

On the subject of world trade, the finance chiefs “enthusiastically agreed” that the stalled Doha round trade talks should be restarted as way of enhancing global growth and contributing to poverty reduction.

But the G7 group failed to reach any clear conclusions on questions of energy and global warming.

Among the wide range of topics that were discussed, exchange rates had been the hottest, particularly the weakness of the yen, which Europe had seen as a threat to eurozone exports and therefore to its nascent economic recovery.

But both the US and Japan had so far insisted that the matter was not a problem.

In the end, the final communiqué largely echoed the generally worded statement issued at the last G7 summit in Singapore in September.

“We reaffirm that exchange rates should reflect economic fundamentals.

Excess volatility and disorderly movements in exchange rates are undesirable for economic growth,” the communiqué said.

Had such comments stood on their own, the Europeans might have experienced a frustrating sense of deja-vu after failing to muster support for joint action on the yen in Singapore.

But in an apparently orchestrated message this time round, many of the G7 ministers insisted in their post-meeting press conferences that Japan had painted a positive picture of its economy, implying that that would soon be reflected in a rising yen.And “reading between the lines” of the final communiqué, as French Finance Minister Thierry Breton had urged the financial markets to do, there appeared to be a veiled warning not to bet on the yen remaining low for much longer.

“Markets, and particularly forex markets, should recognise the risk of moving in one direction too heavily,” said Japanese Finance Minister Koji Omi in remarks that were quickly taken up by the likes of European Central Bank President Jean-Claude Trichet.

For the club of the world’s richest nations, it was the Chinese yuan that was once again the whipping boy, with China pressed to do more to make its currency regime more flexible.

“In emerging markets with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur,” the G7 statement said.

European and US officials contend that an undervalued yuan gives Chinese exports an unfair advantage on world markets.

The G7 also made small, but significant progress on the issue of hedge funds, a trillion-dollar industry that has grown strongly and rapidly in recent years.

G7 host Germany has long seen the rapid pace of growth of the largely unregulated industry as a potential risk that could destabilise the global financial system.

But even the United States, home to many of the funds, seems to have awakened to such dangers.

While reaffirming his belief that the emergence of hedge funds had helped improve the efficiency and liquidity in financial markets, “their rapid growth bears looking at,” said US Treasury Secretary Henry Paulson.

Overall, the G7 insisted that the outlook for the global economy was benign.

“We are enjoying one of the strongest and most prolonged global expansions in memory,” Paulson said.—AFP