By Larry Elliott

Here's a strange thing. The global economy has been growing at its fastest rate in decades. China and India are booming, and the demand of the big developing countries for raw materials is even helping Africa to put on a spurt.

In the developed world, there may be clouds on the horizon but policymakers don't wake up in the middle of the night in a cold sweat worrying about double-digit inflation or an imminent slump.

A more rapid pace of growth adds to the pressure on the environment. Almost without exception, the recent scientific evidence has indicated that man-made factors are leading to global warming.

As economies expand, they need more power, more steel, more concrete. As consumers get richer, they demand cars, holidays, flat-screen TVs. Feedback mechanisms come into play as well. Wealthier consumers can afford to put in air conditioning to cope with the heat but cooling systems require even more power, which adds to carbon emissions and ultimately assuming the science is right to global temperatures.

Yet, perversely, the fact that the global economy is in a sweet spot has created the policy space to deal with the problem that a period of strong growth has itself helped to create. When unemployment is going through the roof, politicians want as much growth as they can get as soon as they can get it, and the environment is a long-term problem that can be put off until another day.

So, when Tony Blair goes to Berlin today to meet Angela Merkel, the agenda for the mini-summit will be totally different from what it would have been when the prime minister met Helmut Kohl in the early days of his premiership.

There will be no talks about the euro or the stability and growth pact. Economics will be tangential to discussions on securing a post-Kyoto treaty on climate change, what needs to be done to clinch a deal on global trade, how Europe should respond to the latest developments in the Middle East peace process, and a package of help for Africa, concentrated on HIV/Aids treatment and education.

Overwhelmingly, it is a good thing that there is a different agenda from a decade ago. For a long time, lobby groups complained with some justification that the issues that mattered (i.e. the issues they were interested in) were ignored at international gatherings. Now global warming and Africa have moved to center stage, and that's progress.

There is, however, reason to be cautious. First, the fact that there are no longer meetings of the G7 called to stabilize currencies does not mean that the big economic issues have all gone away. What it means, worryingly, is that the main players are either unable or unwilling to do anything about them.

This impotence was well illustrated by the weekend's meeting of the G7 in Essen, Germany a far cry from that held 20 years ago this month at the Louvre in Paris. That meeting agreed to use intervention in the foreign exchange markets to put a floor under the falling dollar. In theory, there was similar business for finance ministers and central bank governors to get their teeth into.

For a start, they could have taken up the suggestion of the host nation to do something about the weakness of the yen. It is being dragged lower by Tokyo policymakers' unwillingness to risk raising interest rates for fear that the result would be to kill off what already looks like a faltering economic recovery.

Germany, relying heavily as it does on exports, is worried about this trend and about the growing tendency of hedge funds to borrow money cheaply in yen and invest it in higher-yielding assets elsewhere, often at considerable risks. Yet the Japanese did not want to talk about the yen, while the countries with a light-touch approach to hedge funds (Britain and the US) will do nothing to risk the ire of the City of London and Wall Street.

The G7 might also have taken steps to tackle the chronic global imbalances, in particular the need to massage down the US trade deficit through a controlled depreciation of the dollar. This, though, would require reciprocal action from China, which has been running up record trade surpluses with the US. It has become abundantly clear that the G7 is not the body for achieving this end.

(China Daily via The Guardian February 13, 2007)