G-7 to take back seat ahead of Rome meet

The Group of Seven, whose finance chiefs convene this weekend in Rome, is ceding its traditional power to rebuild the world economy to a broader body of governments that now wield greater sway over global growth.

As US Treasury Secretary Timothy Geithner and European Central Bank President Jean-Claude Trichet join their G-7 counterparts, it’s the Group of 20 that occupies the vanguard responding to the financial crisis.

The shift in influence to the group, whose membership ranges from the US to China to Saudi Arabia, reflects the fact that industrial nations lack the resources to fix the world’s economic woes alone. That curbs the G-7’s scope to deliver new initiatives this week, say economists and former officials.

“The world has changed,” said Paul Martin, Canada’s former prime and finance minister who attended G-7 meetings and helped establish the G-20 a decade ago. “The G-20 reflects the realities of the global economy. Its finance ministers are becoming the dominant policy-making body.”

The G-7’s finance ministers and central bankers meet tonight and tomorrow before releasing a statement and talking to reporters at about 2:30 pm local time. On the agenda: How to thwart protectionism, overhaul financial oversight and end what the International Monetary Fund calls a depression in advanced economies.

Rebuilding world economy: Limiting the G-7’s scope to act is the fact that policy makers have given the task of rebuilding the world economy to the G-20, which was created after a spate of currency devaluations in emerging markets in the 1990s.

The G-20’s increasing influence reflects how the current slump is being led by the major economies, forcing them to look beyond their ranks for help in ending it.