The finance ministers and central bank governors of the seven leading industrial economies (G7) have met in Dresden to discuss ways to achieve a more dynamic world economy and a stable financial system. The meeting from 27 to 29 May was hosted by German Finance Minister Wolfgang Schäuble and Bundesbank President Jens Weidmann as part of Germany's presidency of the G7.

Following the talks, Bundesbank President Jens Weidmann stressed that the main focus had been on the long-term challenges that had to be overcome in order to give a lasting boost to the economies' levels of growth and performance. "More than anything, innovation, investment and the creation of a flexible economy represent the foundation of a dynamic economy and sustained growth," said Mr Weidmann.

According to Mr Weidmann, the participants of the G7 meeting provided mutual encouragement for the implementation of ambitious structural reforms. "These should create a growth-friendly economic environment that will see greater investment and a boost to productivity," remarked the Bundesbank's president.

Sound public finances

"There was a consensus that sound public finances and sustained growth are not mutually contradictory," said Mr Weidmann. In his view, sound public finances were a key precondition for sustained growth. "Everyone emphasised the key importance of structural reforms," added German Finance Minister Wolfgang Schäuble. That was, in his view, already a major success. Public debt and budget deficits had to be reduced, said Mr Schäuble.

The participants of the G7 summit also discussed potential risks to financial stability. Mr Weidmann stressed that developments in the financial markets were being watched closely and that an eye was being kept on inflated asset prices. The recent sharp rise in longer-term interest rates is seen by Mr Weidmann as a "correction of earlier exaggerations".

Regulation agenda

With regard to the subject of financial regulation, the participants at the finance summit reaffirmed their commitment to "full, consistent and prompt" implementation of the reforms agreed as part of the G20 agenda.

One vital pillar, according to Mr Weidmann, are rules for the banks' regulatory capital requirements. A binding lower limit for loss-absorbing capital was a vital component for getting the "too big to fail" problem under control, underlined the Bundesbank's president. Credible standards for this are to be presented at the G20 summit in Antalya in November. "The new rules will additionally ensure that taxpayers are shielded from the losses of tottering banks," said Mr Weidmann. With regard to the regulation of shadow banks, he felt there were still some jobs to be done, above all, in terms of implementing the recommendations that have been drawn up.

Mr Weidmann welcomed the fact that there is a growing consensus about reviewing the existing regulatory treatment of sovereign bonds. The fact that the Basel Committee was going to present relevant proposals in due course was, he said, "confirmation that the topic was now on the agenda".

Code of conduct for bankers

Cases of misconduct in the financial industry were also on the agenda of the G7 finance ministers and central bank governors. "We have to be clear about the fact that misconduct in the financial industry is also a result of lacking moral principles," said the Bundesbank's president. The severity of the penalties imposed gave a clue to the significant harm done to society, he added.

As the participants of the finance summit see it, it would therefore be desirable for a code of conduct for bankers to be drawn up in consultation with the responsible international bodies. The G7 countries are reported to have encouraged the Financial Stability Board (FSB) to develop such a code. "Without doubt, creating a culture of trust through an appropriate self-commitment has to be in the interests of the financial industry, too," said Mr Weidmann.

Symposium with top economists

For the first time at a G7 summit, highly regarded economists were also invited to the meeting in Dresden. They included, for example, the Nobel prize-winner Robert Shiller as well as Harvard economists Kenneth Rogoff and Larry Summers. The joint symposium immediately before the start of the G7 finance summit gave the finance ministers and central bank governors additional insights and perspectives for their debates.

Also attending the G7 finance summit were leading figures from the International Monetary Fund, the World Bank and the OECD, as well as with the President of the European Central Bank and senior representatives of the Eurogroup and the European Commission. The summit will also pave the way for the G7 summit of heads of state or government to be held at Schloss Elmau on 7 and 8 June of this year.