Eric Reguly
One of the joys of watching a Group of Seven meeting is determining who's hot, who's not, who's up and who's down. It's all good sport and, this year, at the mini G7 of finance ministers and central bankers, some of yesterday's losers are today's winners as powerful economic and political tsunamis come out of nowhere and wash up on G7 beaches.
This time last year, for instance, there was no Brexit, no President Donald Trump and, seemingly, no hope that the European Union could escape that populist onslaught. All this has changed.
The mini G7 is being held Friday and Saturday in Bari, the capital of the Puglia region in the heel of Italy, about as far away as you can get from Europe's power centres. The topic is "inclusive growth," and it comes two weeks ahead of the main G7 in Taormina, Sicily.
Given the new faces at the main G7, notably U.S. President Donald Trump, and Mr. Trump's propensity to lob grenades into any peaceful setting, Taormina will no doubt be a media fantasy. But the mini G7 in Bari should not be written off as a non-event, for it will give a taste of the bigger story to come.
Herewith, my list of who's up and who's down in Bari, bearing in mind that there are at least 18 participants, including the biggies from the European Commission and the International Monetary Fund, so there will be omissions.
UP: Mario Draghi. Why is this man smiling? When G7 last met, in Japan, the president of the European Central Bank did not have an optimistic story to tell; now he does. A year ago, his massive quantitative easing program, aimed at stimulating growth and triggering inflation, had yet to produce the desired results and the populist surge in France, Italy, the Netherlands and even Germany threatened to put the EU and the euro zone into reverse, perhaps destroy it. Today, the euro zone is a hot property as growth forecasts get revised upward and unemployment drops. Gross domestic product in the 19-country bloc is expected to expand by 1.7 per cent this year and 1.8 per cent in 2018. Meanwhile, populist leaders in France and the Netherlands were defeated in the recent elections. The ECB seems happy enough about its future that it just leased an additional 75,000 square feet of space in central Frankfurt.
DOWN: Mark Carney. The Canadian governor of the Bank of England seems to have switched positions with Mr. Draghi. Last year, when he predicted that Brexit would damage the British economy, he was humbled. The economy ignored his warning and kept trundling along. This year, the Bank of England is predicting a "smooth" Brexit – Britain is to wave goodbye to the EU in 2019. But many investors don't share his view. Note that the sterling headed south again this week after the bank left interest rates intact. But Mr. Carney's biggest problem may be yet to come. The British banks are heavily exposed to real estate, and commercial and residential values could crack if Brexit turns into a mess, which it could. By last year, Royal Bank of Scotland alone had lent some £25-billion to the commercial property market, representing two-thirds of its capital, according to the Financial Times. Does Mr. Carney have a plan to encourage the banks to downgrade their real estate exposure and put the loot into more productive investments? We don't know, but it might be a good idea.
DOWN: Pier Carlo Padoan. The Italian minister of economy and finance, and host of the G7 event in Bari, is well liked among his finance minister colleagues, speaks perfect English and has survived Italy's revolving-door governments in recent years. But Mr. Padoan doesn't have much to brag about, and Italy has emerged as the weakest link among the G7 and euro zone countries. Growth is barely perceptible, youth unemployment hovers at an atrocious 35 per cent and real GDP per capita in 2016 was still 11 per cent below 2007 levels. This is a big economy with a Godzilla-size debt load going nowhere and a Euroskeptic populist party, Five Star Movement, leading the polls. Oddly, Mr. Padoan has left trade off the table at the G7 in Bari, instructing everyone to talk about "inclusive growth," not trade and open markets, which rather dominates the thinking among the Canadians, Germans and Britons.
UP: Steven Mnuchin. The U.S. Treasury Secretary is up, if only because his G7 colleagues will hang on his every word as if he were Svengali himself. They consider him a proxy for Mr. Trump and his mysterious and erratic ways. They want to know whether Mr. Trump's radical tax-cutting plan is real (and how it would be implemented), whether NAFTA is dying, dead or to be revived in new form, how he will stop tax avoidance by big companies and whether financial regulations will be gutted. In other words, inclusive growth, the official agenda of the G7 in Bari, is not of great interest to any minister not named Mr. Mnuchin, maybe not even to Mr. Mnuchin himself.
SIDEWAYS: Bill Morneau and Stephen Poloz. Team Canada – Mr. Morneau, Finance Minister, and Mr. Poloz, governor of the Bank of Canada – came into the G7 as representatives of perhaps the world's last big liberal economy, where open trade and immigration are worshipped as economic and social gods. But underneath their classic Canadian reserve, there has to be a strong dose of anxiety, because Canada's trade model is under threat. Mr. Trump threatened to shred NAFTA, then backed down and insisted it would be renegotiated, presumably not in the Canadians' favour. What the Canadians really want to know in Bari is which way Mr. Mnuchin is leaning on the NAFTA file.
DOWN: The G7 itself. The G7 and all its offspring, like the Bari meeting, have been usurped by the Group of 20, whose creation was inspired in 1999 by Paul Martin, then Canada's finance minister (he was the G20's first chairman). Born in 1975, the G7 no longer represents the global power base, though it did play a key role in keeping the financial system intact during the 2008 crisis. At least four of the countries – Canada, Italy, France, Britain – are, relatively speaking, bit players as China, a non-G7 member, devours the planet. The United States, Germany and Japan keep the G7 relevant, though barely so. At some point, the G7 will realize it's a quaint relic of a bygone era and amble off to the Home for the Irrelevant.