Argument over a new body to oversee the world's financial system and the continuing threats to the global economy will be the central themes at the G7 meeting this weekend in Bonn.

Tensions are already clear between three of the major players - the US and German governments and the Bundesbank - and any significant consensus from the meeting will be difficult to achieve. The US Treasury Secretary, Mr Robert Rubin, has made it clear he will reject the German government's suggestions for new exchange rate zones - guideline levels at which the world's major currencies would trade against each other.

But he "hopes to reach agreement" on the Bundesbank's suggestion of an international commission to deal with big swings in currencies.

The German government, however, is opposed to the plan for a new institution, drawn up by Bundesbank president Mr Hans Tietmeyer, stating that there would be problems with any involvement of private financial institutions.

The G7 meeting will be attended by finance ministers from the US, Japan, Germany, France, Italy, Britain and Canada. In addition, European Central Bank and Bundesbank presidents Mr Wim Duisenberg and Mr Tietmeyer will attend.

The US is blocking the attendance of a European Commission official, saying there are enough Europeans at the table.

The German government had planned to invite a Commission official along with Mr Duisenberg to get around the US's objections. However, this was dismissed by the Commission, as the official would not have been allowed inside the meeting.

"I have difficulty seeing Mr Giovanni Ravasio (the Commission's director general for economic and monetary affairs) going to Bonn just to hang around in the corridors," a spokesman said.

The German government has tacitly admitted defeat on its proposals on exchange rates, at least for this meeting. Its Finance Minister, Mr Oskar Lafontaine, along with the French and the Japanese, had proposed the establishment of exchange rate bands, which would limit the volatility of movements between the three major currencies. However, the US, along with European central bankers, rejects this argument, stating that to set up any sort of a band is only an invitation to speculators to attack the levels.

Ahead of the meeting, Mr Lafontaine welcomed the recent fall in the value of the euro. "The fall is good news for European exports and the relief in the burden caused by the fall in the exchange rate is very much to be welcomed."

The euro weakened very slightly after this comment yesterday and following news that the European Central Bank had held interest rates steady for at least the next two weeks at 3 per cent. The euro closed at $1.1205 in late trade from $1.1227 a day earlier and at 68.47p from 68.65p. This equates to 86.97p for the pound against sterling.

Key discussions at the weekend meeting will be about the international financial system. Mr Tietmeyer has come up with a proposal to create a Financial Stability Forum to improve co-ordination among national financial authorities, international financial institutions and international regulatory bodies.

Mr Tietmeyer was asked by the G7 finance ministers and central bankers at their October 3rd meeting to examine such a proposal and report back.

However, this approach has already been rejected by Mr Lafontaine. According to a spokesman for the German finance ministry, there are "problems with definition and limitations", particularly involving the private sector's involvement in the new grouping.

The meeting is likely to make some progress on less contentious fronts, such as the transparency of capital movements. Agreement is expected on improvements to the International Monetary Fund's Special Data Dissemination Standard. This is expected to strengthen significantly countries' reporting of their reserves and related liabilities. According to Mr Rubin, the lack of this kind of data played a significant role in making the onset of the Asian financial crisis in the summer of 1998 even worse.

The G7 participants also expect to reach agreement on holding two additional meetings - one in mid-March in Germany and one in April in the US - of a broader group of officials from both industrial and emerging economies on reforming the global finance architecture.

There will be some general discussion on how to boost growth in Europe and Japan.

More growth in these countries "is critical to the prospects for recovery in the emerging economies", Mr Rubin said.