G7 finance chiefs discuss growth risks, urge deal on Greece

The threat of a Greek default, rising oil prices and bond market turmoil are fuelling investor nervousness about an unwinding of the global economic recovery. A slowdown in China, not present at the talks in Dresden, Germany, is adding to the concern.

Speaking before meeting the Group of Seven finance chiefs, International Monetary Fund Managing Director Christine Lagarde said there was still a lot of work to do before Greece and its international lenders could clinch a cash-for-reforms deal.

“We are all in the process of working towards a solution for Greece and I would not say that we already have reached substantial results,” Lagarde told German television station ARD in comments translated from English to German.

“Things have moved, but there is still a lot of work to do,” she noted, adding that she believed Greece would fulfil its commitments.

G7 sources said officials from the member countries, hosts Germany, the United States, Japan, Britain, France, Italy and Canada, were speaking “in different formats all the time” about Greece at the Dresden meeting.

Athens and its EU/IMF lenders have been locked in tortuous negotiations on a reform agreement for four months. Without a deal, it risks default or bankruptcy in weeks.

Greece’s government said on May 27 it was starting to draft a deal with creditors that would pave the way for aid, but European officials quickly dismissed the idea that the talks had reached such a stage.

On the eve of the G7 meeting, U.S. Treasury Secretary Jack Lew urged international creditors to show more flexibility. He said he feared a miscalculation could lead to a new crisis which could have consequences for the wider world.

The differences over Greece follow a growth-versus-budget consolidation debate between the United States and Germany at G7 level.

Meeting under the heading “Towards a Dynamic Global Economy,” the G7 finance ministers and central bank chiefs began discussing economic reforms to increase their competitiveness.

But volatile markets, sensitive to differing growth paths between economic regions, risk derailing their efforts.

In Frankfurt, ECB Vice President Vitor Constancio said a sell-off in financial markets that derails the euro zone’s recovery was the biggest risk to the bloc’s financial stability. ECB President Mario Draghi is taking part in the G7 meeting.

Constancio spoke following a slump in Chinese stocks after several major brokerages tightened requirements on margin financing.

Bank of England Governor Mark Carney, who also chairs a global body of bank regulators, was due to update the G7 finance chiefs on progress towards a new code of conduct for bankers and other changes to the way financial markets are overseen after recent scandals in global currency and interest rate markets.

A G7 source, speaking on condition of anonymity, said the finance chiefs would discuss new instruments for generating sustainable growth once monetary and fiscal policies have reached their limits.

Another topic was clamping down on tax evasion. A German delegation source said the ministers were determined to stick to an end-2015 deadline to implement an action plan for tackling the way corporations shift profits from one country to another in order to reduce tax.

“It’s now about a question of credible implementation ... so that we don’t see ... companies around the world that don’t pay any tax,” the German source said, adding that G7 officials also wanted to think about how to tackle disputes over which country profits are taxed in.