The Group of 7 meeting of finance ministers and central bankers in Marseille closed at the weekend with an acknowledgement from participants that the global economy is slowing, but with no commitment to take new action to stimulate growth.
The delegates said in a communiqué: "There are now clear signs of a slowdown in global growth. We are committed to a strong and co-ordinated response to these challenges."
Yet there was no direct response to the call from Christine Lagarde, the new head of the International Monetary Fund, for those nations that have room to borrow in the international capital markets to slow their pace of fiscal consolidation in order to support immediate-term growth. The statement pledged only to enact "growth enhancing fiscal consolidation".
This ambiguous wording was designed to paper over a disagreement between the White House, which wants the US Congress to approve a $450bn stimulus package, and the German government, which believes that deficit reduction should be the priority of all advanced nations.
Germany's Finance Minister, Wolfgang Schäuble, said after the meeting: "We said that too high deficits are a main problem ... therefore the course of deficit consolidation has to be continued". George Osborne, the British Chancellor, also stressed spending cuts, rather than growth promotion. He said: "The strong feeling ... has been support for credible fiscal consolidation plans for countries with high budget deficits like the one we have in Britain."
The summit is unlikely to do much to reassure investors that there is a focus on growth. Gilles Moec, a senior economist with Deutsche Bank in London, said: "There is no sense of direction, which is entirely expected given that there is no agreement on the path for fiscal policy between the US and Europe.
Ms Lagarde also stepped back from her controversial call last month for European banks to be urgently recapitalised. She described a leaked IMF analysis showing estimated capital losses of European banks at €200bn as "tentative", and added that the fund was "in discussions with our European partners to assess the ... methodology".
The final estimates of the capital shortfall of European banks, which are heavily exposed to the debt of struggling nations on the eurozone's periphery, are due to be published in advance of the IMF's annual meeting in Washington at the end of this month.
The G7 did, however, agree to increase by $38bn (£25bn) the amount of loans to countries involved in the Arab Spring, bringing the total commitment to $73bn.
The summit also left open the door to an intervention by Japan to bring down the value of the yen. The statement said: "Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability."
This was taken by the Japanese Finance Minister, Jun Azumi, to represent a green light for action by the Bank of Japan. He told a news conference: "I believe we gained understanding toward our view on currencies".Reuse content