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it purchased Euros in a concerted action with the other G7 nations.
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G-7 Ministers Convene as Europeans Call
Euro Purchase `Success'
By Michael McKee and Simon Packard
Prague, Sept. 23 (Bloomberg) -- Finance ministers from the seven biggest
industrial nations were expected to decide today what measures to take
next to support the slumping euro and halt surging oil prices.
European officials declared yesterday's surprise purchase of euros in
currency markets a success and suggested it might be repeated if
conditions warrant.
``We want a relation between the dollar and the euro that doesn't damage
international trade and economy and that's why we intervened,'' said
German Finance Minister Hans Eichel.
The sinking euro and a surge in oil prices, cited this week by the
International Monetary Fund as two of the principal risks facing the global
economy, have focused worldwide attention on the Group of Seven
meeting in the Czech Republic's capital.
Following yesterday's surprise currency market intervention, investors will
be watching to see whether the G-7 countries -- the U.S., U.K., Germany,
France, Italy, Japan and Canada -- back up their move today with strong
language supporting the euro and threatening further action should the
currency resume its slide.
``There's probably a more than one-time commitment here,'' said David
Gilmore, a partner in Foreign Exchange Analytics of Essex, Connecticut.
``We may have cat-and-mouse operations for the next several weeks.''
`Available Tool'
Eichel alluded to repeated comments from euro-area finance ministers in
support of intervention. Yesterday's action ``showed that the sentence
that intervention is an available tool isn't an empty sentence,'' Eichel said.
His comments suggest further joint purchases to shore up the currency
are possible -- if the U.S. and Canada are persuaded that European
countries are taking steps to overhaul their economies.
European finance ministers first used the phrase ``available tool'' to refer
to currency market intervention in a May 8 statement, following a meeting
at which they pledged to speed economic reforms, such as liberalizing
labor markets, reducing taxes and broadening private pension programs.
U.S. Treasury Secretary Lawrence Summers and others have said
European reforms are necessary to help strengthen the region's
economies and the euro. ``There's no question that there are ongoing
reforms in Europe,'' Summers said yesterday in Washington.
And Canadian Finance Minister Paul Martin said today in Prague that
``there are a number of structural changes which if carried out by the
Europeans, like labor policy for example, would be helpful.''
Euro Could Fall
With growth in Europe weakening, and polls showing Danish voters likely
to reject joining the euro zone in a referendum next week, analysts said
the single currency could soon start falling again.
The ministers also will discuss how to ease an oil shortage that's pushed
prices up to a 10-year high this week and led to strikes in several
European countries, Summers said yesterday.
President Bill Clinton yesterday ordered the release of 30 million barrels of
oil in the U.S.'s emergency Strategic Petroleum Reserve to ease
shortages as the U.S. winter approaches. ``The reason we are doing this
is not for price but to deal with disruptions,'' Energy Secretary Bill
Richardson said, in announcing the president's decision. ``We are taking
this step to reduce the risk of heating oil shortages.''
While some analysts said the move would push down prices, others
expressed concern that it could set a dangerous precedent of government
manipulation of oil prices.
Oil for Emergencies
``The SPR was not designed to intervene in the markets when prices are
high,'' said John Lichtblau, president of the Petroleum Industry Research
Foundation in New York. ``It was designed for emergency purposes, when
oil becomes unavailable, like in the Iraqi war.''
The IMF's chief economist, Michael Mussa, warned this week that rising oil
prices could shave three-quarters of a percentage point off growth rates
and cause inflation to accelerate. During the past 18 months oil prices
have more than tripled, raising costs for companies and slashing
consumer spending power.
Europe has been beset by protests from consumers and businesses that
have led to blockades of oil refineries and depots, causing oil shortages.
France, which holds the European Union presidency, this week called for
discussions between G-7 countries and oil producers before a meeting of
the Organization of Petroleum Exporting Countries scheduled for the end
of the month in Caracas.
Euro's Decline
The euro was billed by European government leaders before its inception
Jan. 1, 1999, as a currency that could topple the dollar's dominance. Its
subsequent 25 percent decline against the dollar has eroded the
spending power of the euro zone's 292 million citizens abroad, fueled
inflation, and led to higher interest rates in a region spanning from Finland
to Portugal.
In a Bloomberg News survey, 14 of 21 investors said the ECB would
intervene again if it falls as low as 85 U.S. cents, with just 10 saying that
today's action alone could be sufficient to turn the tide against the euro.
The surprise move by the European Central Bank, the U.S. Treasury, the
Bank of England, Japan's Ministry of Finance, and the Bank of Canada
boosted the euro as much as 3 percent against the dollar, to a two-week
high of 89.92 U.S. cents up from Wednesday's record low of 84.43 U.S.
cents. The currency is still down by a quarter since its introduction in
January 1999.
The G-7 will also likely seek to accelerate a process under which debtor
countries get relief, getting 20 countries through the program by the end
of the year.
That could mollify some of the protesters expected to fill Prague's streets
this weekend calling on the G-7, IMF and World Bank to wipe out debt
held by the poorest countries.
The IMF-run Heavily Indebted Poor Countries initiative identified 41
countries whose debt levels were ``unsustainable,'' representing three or
more times the value of their exports.
The program has been bogged down by funding shortfalls, disagreements
about burden sharing between creditors and slow negotiations over the
conditions for relief. So far only Uganda has qualified to have debt
canceled, while another nine countries are benefiting from ``interim
assistance.'' |
