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Representatives of the G8 are meeting again as I write, to practise the art of talking. The self described syndicate of “main industrialised countries” have perfected the process of conducting a whirlwind of meetings, agreeing a globally co-ordinated strategy, presenting unity to the world’s press then returning home to focus on their own unique objectives. China and India must be increasingly bemused at being denied a seat at the exclusive G8 table which remains a predominately European and Anglo-Saxon affair. Admittedly Japan is a member, one of the six founding members from the first 1975 meeting, as is Russia which joined in 1991, but the group remains an old-boys club for Europeans and North Americans who cling to the memories of global economic dominance, long faded. Actually, there aren’t eight members at all in the G8. There are nine. The European Union also has membership. For clarity, the complete roll-call consists of the US, UK, France, Germany, Italy, Canada, Russia, Japan and the E.U.

Maybe because the British and French economies have been in relative decline for the longest, eroding their delusions of self-importance, they have most forcefully argued for the inclusion of the five key emerging economic powers, (Brazil, India, China, Mexico and South Africa) into a permanent enlarged forum to replace the G8. Meanwhile, Japan, devoid of oil and commodity resources, has been more than empathetic to the view that the Middle East should be represented. Under such circumstances, it’s easy to see why a Federal Reserve meeting or dare I say a Condoleezza Rice visit to China is actually of more economic significance than the annual G8 photo-shoot.

Cynicism aside, even if G8 action is inevitably absent following the meeting, the leaders still discuss the issues and therefore the agenda, in itself, is worthy of discussion. This weekend’s agenda includes the design of an "appropriate framework" to extract the unprecedented economic stimulus executed in recent months. The inclusion of such a discussion point proves two things. Firstly, the global economy as a whole, is recovering. Secondly, it supports the growing view that inflation is returning and if unchecked may become a real obstacle to stable growth in 2010/11.

The G8 have a major challenge on their hands. Regular readers of this column are well able to identify this. The rate of recovery differs greatly from country to country. China never fell into a recession. Commodity producing regions are already benefiting from fast-rising resource prices. The UK economy apparently returned to positive growth in April. The US economy is still a hit-and-miss proposition, albeit improving by the week, whilst Europe remains the problem child. How can a single global strategy be executed, withdrawing economic stimulus, as whatever pace is chosen for that strategy it will be fundamentally wrong for countries at either extreme of the global economic recovery?

The French, apparently, are trying to kill off any discussion regarding the easing of current stimulus measures, whilst at the other end of the economic spectrum, Canada, is lobbying for support to agree an “exit strategy” fearing inflationary pressures. Meanwhile, the US acknowledges some progress made but is keen to let the stimulus package run for some time yet before drawing excess liquidity out of the financial system.

If you can legitimately blame poor Anglo-Saxon risk controls, within the banking sector, for creating the global recession, it’s equally valid to suggest the European Central Bank (ECB) is at fault for allowing Europe to trail the UK, US and Asia in the global recovery. ECB monetary policy over the past year has been just unforgivable. But don’t take my word for it. Let’s review what the International Monetary Fund (IMF) articulated in their recent European economy review.

The IMF, in the very first paragraph of its June 8th report commented, Europe needs to "take further decisive action, especially in the financial sector". The report progressed, suggesting the European bureaucrats were missing "a proactive strategy" and they should pursue a "cleansing of the financial system without delay”. Unemployed Europeans must be dying of frustration. At least the Americans and British left no monetary stone un-turned in their efforts to stimulate growth. The author of this damning report, the IMF, is rated very highly indeed. The institution is full of quite brilliant economists. With relatively limited power it has competently pursued its primary aim of helping countries improve their macroeconomic and financial infrastructure since its inception in 1944. I would gladly pass European monetary policy control to the IMF immediately, thereby allowing ECB members to attend the excellent London School of Economics summer school course in Introductory Macroeconomics, which I can vouch for, following my attendance nineteen years ago. Of course, I joke, ECB decision makers should be well capable of tackling the intermediate course.

Source: G8 Still Predominantly a European and Anglo-Saxon Affair