Never mind what the commentariat thinks: for the real take on how the G8’s panning out, take a look at how the markets are reacting.  John Authers:

For currency traders, the G8 was notable solely for what was not said and for who was not there. Rhetoric suggested the summit would be the “high noon” for the dollar as a reserve currency, as China pushed for a more diversified anchor for foreign exchange.

But currencies are not even mentioned in the draft communiqué. China’s premier was not present for the discussions, thanks to trouble at home. The showdown on the dollar’s future did not happen. Rather than dancing to the tune of the world’s leaders, forex markets suffered a new wave of aversion to risk.

That wave started in the commodities market, where prices dipped sharply. The CRB index, a broad index of commodity prices, dropped to its lowest level since early May, pushing below its 200-day moving average – a strong signal that its rebound of the past few months was over. The CRB is down more than 12 per cent since it topped out last month and is 51 per cent below its high set last year. This implies that deflation – falling prices and stalled economic activity – is a much greater risk than the resurgent inflation that was being talked about only weeks ago.

Gold, an inflation hedge, fell 2.2 per cent and is now down more than 10 per cent since it hit $1,000 per ounce in February. In currencies, the Japanese yen, which gains when people are anxious, made dramatic and sudden gains against the dollar and the euro. This could increase pressure to intervene to keep the currency cheap.

These developments are alarming. The pendulum in the debate between inflationists and deflationists has swung back to the deflationists – at a point that inflation still looks the lesser evil. But at least risk aversion will help the dollar avoid further falls and delay the moment when it is replaced as a reserve currency.

What on earth is going on here?

The only reasonable interpretation is that our leaders are attempting to re-enact a scene from Michael Mann’s excellent 1930s gangster film Public Enemies (sample line: “how long does it take you to go through a bank?”).

Alex adds: well, given the gangsta hustla manner in which he arrived, it was clearly always going to end this way. I blame Putin.

Further to Alex’s grovel below, it’s time for me to clarify my position on Italy’s place in the G8.  Yes, I was the one named source in the Guardian’s piece entitled “Calls grow within G8 to expel Italy as summit plans descend into chaos”, reproduced in almost every Italian newspaper and then some.  Yes, I called the Italian preparations for the G8 a “gigantic fudge” – ably translated “una buffonata colossale” by Corriere Della Sera.  And,  yes my boss Bruce Jones then gave a series of quotes broadly backing me.

However, let’s get one thing clear: neither Bruce nor I have at any point advocated chucking Italy out of the G8.  I for one think that it is a silly idea. 

Sure, preparations for L’Aquila haven’t gone great.  But almost all G8 planning processes are a mess – some hosts just get luckier with the outcome documents than others.  The question of whether Italy should be there or not is a total distraction.  The real question is not which Europeans are at the G8 or G20, but how well they coordinate there.   As Bruce and I note in today’s European Voice, the record is mixed:

Europeans frequently fail to use their influence efficiently. The run-up to the London G20 summit was enlivened by intra-European spats, with French President Nicolas Sarkozy threatening to walk out if France’s interests were not satisfied. There was little real co-operation between the UK diplomats planning the G20 and their Italian counterparts on the G8.

Italian officials indicated that they would shape the G8 agenda to meet any requests from the Obama administration, but US officials complain that what they really want from the Europeans is some coherence – to allow more time bargaining with the Chinese and Indians, and to spend less time having to worry whether the Dutch or Italians [sorry Italians!] are on side.

What to do? We have a plan:

France will be Europe’s next G8 hosts, in 2011. It should start co-ordinating within the EU and with the Canadians, who host the 2010 G8, and the Americans, who take the reins in 2012, on how to deliver sleek, workmanlike summits that include China, India and other emerging powers as full partners – rather repeat the confusions of L’Aquila.

So there, we are constructive, nice people after all.  And pro-Italian.  I celebrated my new-found notoriety at the excellent Sorella on the Lower East Side.  Go there, New York-based readers and have the pate de fegato:

Full-scale photo here.

Bugger:

The world’s major industrial nations and emerging powers failed to agree Wednesday on significant cuts in heat-trapping gases by 2050, unraveling an effort to build a global consensus to fight climate change, according to people following the talks.

As President Obama arrived for three days of meetings with other international leaders, negotiators dropped a proposal that would have committed the world to reducing greenhouse gas emissions by 50 percent by midcentury and industrialized countries to slashing their emissions by 80 percent.

The discussion of climate change was among the top priorities as world leaders gathered here for the annual summit meeting of the Group of 8 powers. The leaders were also grappling with the sagging global economy, development in Africa, turmoil in Iran, nuclear nonproliferation and other issues.

The breakdown on climate change underscored the difficulty in bridging divisions between the most developed countries like the United States and developing nations like China and India. In the end, people close to the talks said, the emerging powers refused to agree to the limits because they wanted industrial countries to commit to midterm goals in 2020 and to follow through on promises of financial and technological help in reducing emissions.

Folk close to preparations for Italy’s G8 next week have been rolling eyes, shruggling shoulders and wringing hands for some months now about the train wreck that the summit looks likely to be: but now that L’Aquila, the venue for the shindig, has just had yet another earthquake, maybe it’s time to start biting nails as well.  Still, at least the briefing pack sent to delegations has detailed instructions for what to do if disaster strikes (bet they all feel a whole lot better for that).

Security, meanwhile, is rock-solid – as two British representatives of the media discovered:

Top secret: a mobile basketball hoop specially installed for Barack Obama to enjoy during next week’s Group of Eight summit of world leaders is strictly off-limits to unauthorised personnel, the heavily armed Italian police guards warned.

Such is the chaotic state of preparations for the July 8-10 summit in a police barracks on the edge of the quake-torn city of L’Aquila that scores of reporters were kept penned for hours outside in a temporary press centre waiting for Silvio Berlusconi, prime minister and host, to speak.

Except, that is, for two frustrated correspondents of the Financial Times and The Guardian, who found an unguarded side entrance into the sprawling complex of the Ministry of Finance Police College and spent an hour mingling with workers before finally being captured at the hoop.

The FT’s Guy Dinmore reports that “digital photographs of the sensitive hoop [were] deleted” by vigilant members of the Guardia di Finanza, but the Guardian’s John Hooper showed more initiative: here’s his snap of the 5 star resort that awaits President Obama.

Nice. Incidentally, if you’re still optimistic enough about the summit to be curious about what’s actually on the agenda, Berlusconi’s modest ambitions include “the financial and economic crisis and the search for new proposals for stability and growth”; “the battle against climate change”; “the fight against terrorism and nuclear proliferation”; “development in Africa and other less advanced economies”; and “regional and global security … with special attention paid to the Middle East and Afghanistan”.

Development charity One.org has released its annual report examining how far G8 countries are meeting their Gleneagles commitment to double aid to Africa. The US, Japan and Canada are headed towards meeting or exceeding their pledges, while Germany and the UK are said to be ’striving’ towards their ‘big commitments’. Unfortunately, France and Italy are letting the rest of us down. Apparently, they account for 80% of the shortfall in aid increases. Italy’s efforts in particular are described as an ‘utter failure’. Bob Geldof is quoted as having commented in a characteristically forthright manner:

Poor, sad Italy. That their economy is in such a disastrous meltdown condition that they must steal from the poor, rob the ill and snatch education from the minds of the young not only beggars the imagination, but must also surely beggar the soul of that most beautiful country. Shame on you. Your government disgraces you.

‘Nuff said.