(Front L-R) Governor of the Bank of England Mervyn King, Finance Minister of Canada Jim Flaherty, Federal Minister of Finance of Germany Wolfgang Schauble and Finance Minister of Japan Taro Aso during the G7 finance ministers and central bank governors meeting in Aylesbury, southern England, on May 10, 2013. - AFP Photo
AYLESBURY: The Group of Seven top economies are set for a second day of talks on Saturday aimed at spurring growth amid US-Europe divisions over the scale of austerity and renewed market focus on “currency wars” after the yen hit new dollar lows.
“Our task is to nurture the recovery,” British finance minister George Osborne said Friday as he opened the gathering amid pressure on Britain and other indebted European nations to scale back deep cuts to state spending, in order to support fragile growth.
“Our challenge is not to falter in the difficult steps we need to take to make that recovery sustainable and lasting,” said Chancellor of the Exchequer Osborne.
“Markets have calmed, and there are signs that this is feeding through into greater confidence. But we cannot take the global recovery for granted,” he added.
The two-day G7 meeting in Aylesbury, northwest of London, is being attended by finance ministers and central bank governors from all the member states as well as top representatives from the European Union and International Monetary Fund.
The G7 – comprising Britain, Canada, France, Germany, Italy, Japan and the United States – is building on last month's wider Group of 20 meeting, while looking ahead to next month's G8 heads of state summit in Northern Ireland.
Britain is this year president of the G8 – or G7 plus Russia – and is using the platform to also push for greater multilateral co-operation in tackling tax evasion.
The IMF, while welcoming efforts by indebted nations to cut spending, has urged Britain to lessen the pace of its austerity programme to support the country's fragile economic recovery.
And on Friday, US Treasury Secretary Jacob Lew said the world's biggest economy feels “strongly there needs to be the right balance between austerity and growth”.
The European Union recently granted France two extra years to meet its deficit target on condition that it pursues reforms.
The G7 nations, which together produce about half of the world's economic output, are slowly recovering from a late 2012 slowdown, the OECD said recently, with Japan and the United States leading the way.
Emerging economies were tipped to remain by far the strongest growth performers, with China expected to expand by more than 8.0 per cent in the first half of 2013, the Organisation for Economic Development and Cooperation (OECD) said.
Forecasts remain very uncertain however, the OECD added, with new-found buoyancy on financial markets yet to feed through to the wider economy.
The meetings take place as US and Frankfurt stock markets have raced to record high points this week following positive economic data out of the United States and Germany.
----- Yen in focus after reaching multi-year lows versus dollar ------
Crucially, in foreign exchange deals the dollar Thursday vaulted past the key 100-yen barrier for the first time in more than four years, as Tokyo's aggressive stimulus efforts to lift the Japanese economy continue to depress its currency, helping to boost demand for Japanese exports.
And the dollar raced as high as 101.98 yen on Friday, touching a level last seen in October 2008, before settling at 101.62 at 1.30am Saturday (0030 GMT).
“We are not manipulating the foreign exchange market but trying to come out of deflation,” Japan's Finance Minister Taro Aso insisted on Friday prior to leaving for Britain.
The EU's Economic Affairs commissioner Olli Rehn said the G7 talks would focus on boosting economic growth rather than currency concerns.
“It is important that in line with previous (G20 and IMF) decisions...there is no talk about currency wars, (but) there is discussion about how to better co-ordinate our economic and monetary policies to support growth,” he told reporters Friday on arrival at the gathering in the English countryside.
His comments come as central banks around the world are again cutting interest rates in a bid to lift growth.
The G7 is “due to discuss a number of issues including ways to get the global economy moving again, as well as the controversial topic of central banks,” noted analyst Craig Erlam at traders Alpari.
“So far, they have attempted to distance themselves from suggestions that certain central banks are intentionally devaluing their currencies in order to increase competitiveness, but with more central banks cutting rates and announcing large stimulus programmes, it could only be a matter of time until we see their tone change.”
Last month, G20 nations gave the green light to aggressive stimulus by Japan, despite recent heavy criticism in Europe that the Asian country is forcing down the yen's value to help its exporters.