LONDON (Reuters) - Finance ministers from the world's richest nations headed for London on Friday to discuss free trade and the world economy as well as say farewell to Alan Greenspan, who soon bows out after 18 years as U.S. central bank chief.
In a speech on global imbalances, which have plagued Group of Seven policymakers for years, Greenspan, 79, warned there could be painful economic consequences unless there was action against trade protectionism and budget problems.
London and Washington hope the meeting will produce a renewed commitment to free trade ahead of a Hong Kong meeting of 148 countries in less than two weeks' time which is already being billed as a possible failure.
Britain's Gordon Brown, who chairs the G7 group this year, put much of the blame on other European nations and called for an end to subsidies for farmers in rich countries, which the OECD says total about $280 billion a year.
"Securing a world trade deal is one of the most important tasks and it is urgent that all countries come together to make that possible," he said ahead of the meeting.
"I believe there is a chance for progress if countries worried about services and market access can make some concessions and America and Europe can look again at agricultural protectionism."
The United States said it was willing to make some concessions but only if it got something in return.
"It's clear there has to be more give," said U.S. Treasury Secretary John Snow after talks with Brown. "We have to focus on a spirit of reciprocity."
But France in particular is already very unhappy about concessions being made on the European Union's behalf in the run-up to the Hong Kong meeting.
The only thing French Finance Minister Thierry Breton has said about the G7 meeting is that Washington had to reduce its massive deficit.
Canadian finance minister Ralph Goodale said farmers in developing countries did not stand a chance of competing unless trade rules changed.
"The first initial step would seem to be some movement by Europe to get serious about the Common Agriculture Policy," Goodale told Reuters in an interview.
Britain said it might take up Brazil's idea of an extraordinary leaders' summit if G7 finance ministers could not break the current deadlock. Brown has invited Brazil, India, China, South Africa and Russia to some of the weekend talks.
Trade ministers, meanwhile, were meeting in Geneva also to push forward progress on a trade deal that could lift millions out of poverty and provide a massive boost to global economic growth.
STRIKING THE RIGHT IMBALANCE
Friday night's G7 dinner, otherwise, will focus on the risks of the economy coming unstuck because of imbalances such as excess liquidity, the United States living on credit, European inertia and China keeping its currency too low.
The United States looks sure to keep up pressure on Beijing to let its yuan rise against the dollar so as to ease pressure on American exporters but Snow would not comment on a report that said China would revalue by 7.2 percent in the New Year.
Beijing, which earlier this year ended its rigid currency peg to the dollar and allowed a small appreciation, made it clear ahead of the talks that yuan reform was not the problem or the solution to trade imbalances in the global economy.
On exchange rates generally, the G7 club is unlikely to make any significant change to its traditional statement, officials said in off-record briefings ahead of the London talks.
The dollar has been rising this year as investors plump for the higher rate of return the U.S. currency offers because of serial interest rate rises by the Federal Reserve.
Those may now be coming to an end while the European Central Bank raised interest rates on Thursday for the first time in five years to head off potential inflation risk, much to the annoyance of politicians and unions in the euro zone.
German finance minister Peer Steinbrueck said he expected to discuss the interest rate rise in London with ECB chief Jean-Claude Trichet.
(additional reporting by Mike Peacock and Glenn Somerville in London)
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