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. Last Updated: 07/27/2016

Merkel Keen For G8 to Get Back to Basics

The Germans are already planning for their presidency of the Group of Eight, and in particular the agenda for next June's G8 summit, which they want to focus on mainstream economics. But that meeting could just as easily be hijacked by some extraneous crisis as last month's St. Petersburg summit was eclipsed by the Israel-Hezbollah conflict.

But Angela Merkel, the German chancellor, is keen for the G8 to "get back to its roots" in discussing the global economy. This is not just because she shares the widespread feeling that the G8 agenda has become too diffuse. It also reflects Germany's worry about the growing current account imbalances of major countries, leading to protectionism that could hurt its position as the world's largest exporter.

Merkel has history on her side. The G8 started life in 1975 as a "fireside chat" on economic issues among the leaders of the seven biggest or richest industrialized democracies. The early summits were dominated by discussions about monetary and macroeconomic cooperation, appropriate to the 1970s with its oil shocks, and to the 1980s when it was still the fashion to deal with currency imbalances with explicit attempts at exchange-rate management, such as the Plaza and Louvre accords.

After the cold war, the G7, which was enlarged in the 1990s to take in Boris Yeltsin's Russia to reward its moves towards democracy, succumbed to the temptation to wander over broader political ground, where it has remained ever since.

Yet, given the scale of today's current account imbalances, they clearly warrant more attention from world leaders than they got in St. Petersburg. The challenge is for these imbalances to be smoothly unwound, for China to let its currency appreciate, and for the United States to raise its savings rate, without sharp or severe disruptions to trade, consumption or investment patterns.

One institution has risen to this challenge: the International Monetary Fund, which is keen under Rodrigo Rato, its new director, to regain the larger role it once held in managing the world economy. This year saw agreement that the IMF would start multilateral surveillance of global trade imbalances. But this IMF exercise is still in its infancy. There can be no harm in next year's G8 summit taking a hard look at the problem, particularly in the likely absence of any further progress in the Doha round of WTO talks.

But there is a snag in Merkel's plan. She wants to focus the G8 agenda on economics, but also to prevent expansion of the group to include countries such as China. But China is, if anything, a bigger economic than political player in the world.

This comment appeared as an editorial in the Financial Times.