G8 to become irrelevant?

World economic stability has historically been "managed" by the G8 - The US, UK, France, Germany, Italy, Japan, Russia and Canada - the most industrialised, wealthy and powerful states, sharing approximately two-thirds of global wealth.

It began informally at a summit in France in 1975 in the aftermath of the oil crisis, and continued ever since, trying to manage global economic crises E.g. putting in place the Plaza accord in 1985 to intervene to devalue the dollar against the Yen and Deutchmark to deal with the US trade deficit, and then the Lourve accord in 1987 to halt the decline of the dollar. The Lourve accord didn't quite work out properly (the Americans were half-hearted), and with the advent of China, India, Brazil and the tiger economies of South East Asia, the G8 has been seen as less and less influential and relevant, despite grandiose summits and equally grandiose agendas (such as making poverty history).

Last week, the IMF, which has been trying to build a new role for itself, announced a new grouping to deal with world imbalances.

According to the FT,

"China and Saudi Arabia have been named as two of the five economic areas that will participate in the International Monetary Fund's efforts to resolve the world's glaring trade imbalances. The other three participants will be the economic superpowers of the US, the eurozone and Japan.

The IMF said this week that this new group of five systemically important economic areas for the global economy would engage in its first "multilateral consultations" aimed at "how to address global imbalances while maintaining robust global growth"."

According to Roderigo Rato of the IMF, "".These economies are either ones with large current account surpluses or deficits, or they represent a large share of global output," he said.
"Their co-operative action can play a major role in the orderly unwinding of these imbalances and in sustaining global growth as savings, consumption and investment patterns adjust."

China's trade surplus doubled in 2005 to exceed 7 per cent of gross domestic product, according to the IMF, making it an indispensable part of any resolution of the imbalances.
Saudi Arabia, as the world's largest oil exporter with a current account surplus of 28 per cent of GDP in 2005, will represent oil producing countries, which have accounted for the most rapidly growing surpluses over the past two years."

The significance is that it will leave the G8 out in the cold, and with it the economies of the UK and Canada (both considered too small) and Russia (not as important as Saudi in terms of trade surpluses and energy). Our exclusion is a consequence of not being part of the Euro, and perhaps British Chancellors will have to get used to not being at the centre of things anymore.