June 2 (Reuters) – If the Group of 20 were a wine, a connoisseur would say that it has great potential but that a lot depends on how it matures over the years.

The old root stock of the Group of Seven industrial nations has been freshened up with fast-growing emerging economies including China, India and Brazil. The likes of Indonesia and Argentina add spice to the assemblage.

Now comes the hard part: making a finished product that is well-balanced and harmonious.

“It’s not going to be about the G7 any more. That’s very clear. It’s just that the G20 is not yet a well-functioning team,” Alicia Garcia-Herrero, Hong Kong-based chief economist for emerging markets at Banco Bilbao Vizcaya Argentaria.

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TAKE A LOOK on the G20 meeting [ID:nSGE64R00R]

G20 ministers face wrangling over bank tax [ID:nLDE64O0MP]

Q+A - G20 efforts to agree a bank tax [ID:nLDE64Q135]

FACTBOX-What the G20 will discuss in Busan [ID:nLDE64Q1LB]

FACTBOX-G20 progress on financial regulation[ID:nLDE64N0NC]

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For sure, near-term expectations are low.

A meeting of G20 finance ministers and central bank chiefs in this port city on Friday and Saturday is unlikely to make much headway on the contentious issues of international financial regulation and a global bank tax to pay for any future bailouts.

Ministers are expected to fudge the tax issue by drawing up a “list of principles” for the group’s leaders to consider at a summit in Toronto on June 26/27, according to a G20 source.

Papering over differences would reinforce criticism voiced by officials — from both rich and emerging countries — that the G20 is more of a talking shop than an executive committee to steer the world economy.

“There is still a transition, in that having many more players at the table in a relatively disorganised way makes it hard to take decisions,” Garcia-Herrero said.

LEGITIMACY

Although world leaders last September elevated the G20 to be the premier international economic policy forum, it was telling that it was G7 finance ministers who held a conference call last month to discuss Greek and euro zone debt woes — an issue set to feature prominently in Busan. [ID:nN14134540]

Consensus over a bank tax would have eluded even the tighter membership of the G7, given Canada’s fierce opposition.

Still, the bickering is taking some of the shine off the G20′s impressive response to the 2008/09 financial meltdown. The group’s governments pledged $5 trillion in stimulus spending and loan guarantees in a display of urgency that some fear is fading.

“As the economy has started to recover, we observe a very diluted imperative for global cooperation and standard setting, in favour of more technical and nationalistic proposals,” Li Daokui, an economics professor at Beijing’s Tsinghua University, and Suzanne Nora Johnson, a trustee of the Carnegie Institution for Science in the United States, wrote in a paper for the World Economic Forum issued last week.

Yet markets ignore the G20 at their peril.

Accounting for 85 percent of global GDP, the group unquestionably enjoys greater political legitimacy than the G7.

And not least because China is a member, it is the G20 that holds the key to ironing out global economic imbalances.

“Increasingly the G20 is a big focus,” said Michael Buchanan, chief Asian economist for Goldman Sachs. “Given China’s preference for multilateral institutions, the G20 seems a much more appropriate forum for China to make its voice heard.”

Buchanan agreed that it would be better to have a smaller group — with the United States, China and a single euro zone representative at its core — to thrash out currency policy.

“But if you want to have a discussion about the risk to global growth and you don’t include China with a proper seat at the table, that’s not too sensible,” he said.

To improve the workings of the G20, governments are debating the merits of a permanent secretariat to ease the burden on the rotating presidency, a Chinese official said.

Garcia-Herrero with BBVA said that in addition to a stronger secretariat, the G20 could call on regional and international institutions to work on various issues.

“It would become more multilateral than it was at the G7 because there are more people involved. But that doesn’t mean it won’t work,” she said. (Additional reporting by Brian Love in Paris; Editing by Ken Wills and Neil Fullick)