Finance ministers from the Group of Seven industrialised countries meet in Bonn today to consider the state of the world economy and proposals to improve co-ordination of policy to regulate it. The latest economic figures do not provide a propitious backdrop for the meeting. The ministers will discuss the economic downturn in continental Europe and in Japan - the US economy remains robust for the moment - but are unlikely to agree on significant new measures to stimulate growth. Hopefully, they may also agree on an initiative to reduce or write off the indebtedness of developing countries.
They may have interesting discussions on overseeing the international financial system. Here the French and German governments favour exchange rate zones to try to control currency swings - a measure that does not find US or British support. A proposal to set up a new institution to monitor financial market movements - drawn up by the Bundesbank president, Dr Hans Tietmeyer - is not expected to be agreed on, this time around at least.
The latest evidence shows that growth in major EU economies slowed significantly towards the end of last year. With international growth hit by the economic slump in Asia, both the French and German economies have suffered and now appear to be hardly growing at all. No wonder the new German government is pressing the European Central Bank (ECB) to lower interest rates in the euro-zone yet further. The bank, however, looks unlikely to oblige, in the short term at least. It has already expressed its reservations about budgetary policy in some of the main EU economies and is now faced with a sharp weakening of the euro against the other international currencies.
The bank calculates that this will provide stimulation for the euro-zone economies by making their exports more competitive on international markets. It is not too worried - yet - about the inflationary consequences of higher import prices, although it will not want to see the new currency fall much further. Against this background, the ECB is expected to keep interest rates on hold, for the moment at least. Any further evidence of weakness in the main economies may, of course, lead to pressure for further reductions.
Given the imbalances between the main centres, it is clear that a major management task confronts the Group of Seven states. Their primary objective should be to support world economic growth. At present US consumer demand and stock market buoyancy - together with a burgeoning balance of trade deficit - are sustaining international demand. Clearly both the European and Japanese economies are the prime candidates for stimulus.
There are competing interests at play between the main economic powers. While it suits the US government to leave the dollar free to rise or fall according to the state of its domestic economy - knowing that the dollar's international position as a reserve currency confers a running advantage - political managers of the euro are anxious to see the new currency rapidly establish a complementary role, perhaps through target zones. It will take time to work out these new relationships; whatever the outcome the need for growth should drive the search for the optimum means of co-ordination or regulation. In the meantime, Mr Tietmeyer's suggestions deserve urgent attention at this and subsequent meetings.