G-7 Finance Ministers to Meet

posted by Jared Fruland
copied from the Associated Press

FRANKFURT, Germany (AP) - Finance ministers and central bankers from the world's seven richest nations are set to focus on hedge funds, foreign exchange issues, energy and education as they gather this weekend.

While initial talk ahead of the meeting has focused on European concerns that the Japanese yen, a driver of economic growth in Asia, has been weakening, a wider examination of foreign exchange rates and their effect on economies will likely result.

"The issue is a central element in G-7 talks," German Deputy Finance Minister Thomas Mirow said this week at a briefing on the two-day summit which starts Friday in the west German city of Essen.

But while the euro has hit new highs against the Japanese currency, to reach 158 yen, the country's interest rates are still at just 0.25 percent. At the same time, rates in the euro-zone and Britain have steadily been raised.

The yen's weakness against the euro has caused some concern among EU finance ministers because it makes Japanese goods less expensive than those made by companies in the EU.

Mirow wouldn't say if the yen would be the dominant issue of the meeting, saying all currencies remained an issue and that "the yen is also an important currency, among others."

Japan's Vice Finance Minister Hideto Fujii said Thursday that he expected the finance and central banks chiefs from the Britain, Canada, France, Germany, Italy, Japan and the United States to discuss overall macroeconomic, financial, monetary and currency conditions, but not to zero in on the yen.

Another key issue the finance officials will likely examine is the growth of hedge funds, a significant topic for Germany given their rising influence over companies.

Hedge funds became a political hot potato in Germany in 2005 when a senior Social Democrat politician called for tougher controls, describing them as "locusts" after hedge fund pressure botched Deutsche Boerse AG's bid for the London Stock Exchange PLC and forced out the German stock exchange's chief executive.

Germany has made hedge fund issues a de rigeur topic for its EU and G-8 presidencies this year. Finance Minister Peer Steinbrueck has said the country wants G-7 nations and EU countries, along with the U.S. to try and figure out how to pre-empt any risks that speculative hedge funds may pose to the global financial system.

Hedge funds -- high-risk, largely unregulated and secretive investment pools -- have traditionally been the investment domain of the wealthy but have become popular with pension funds, life insurance companies and small investors looking for high returns.

The U.S. Treasury said the ministers would dicuss the impact that hedge funds have on the global financial system, including whether increased oversight would help policy makers. But it stressed that the Bush administration believes that market discipline -- not more regulation -- was the best way to monitor hedge funds.