G8 Summit Grapples with Dollar Drop
Mon June 2, 2003 05:28 AM ET
By Guy Debache
EVIAN, France (Reuters) - World leaders broached the dollar's recent tumble in exchange rate markets on Monday at a Group of Eight summit designed to shore up confidence in the shaky global economy.
Dollar weakness versus the euro and yen, while good for U.S. exports and jobs as presidential elections loom there next year, has raised fears in Europe and Japan that what may help in the United States may choke recovery prospects in the European and Japanese economies.
Delegates at the G8 meeting said the request for the currency debate came from the European side, despite noises from countries like Germany ahead of the summit that leaders would not touch on the issue during their three days in Evian, France.
One delegate said on Monday that a specific G8 statement on exchange rates was not to be expected during the course of the day, even if commentary on the matter in the end-of-meeting communique on Tuesday was not ruled out.
The G8 talks -- involving leaders from the United States, Germany, Japan, Canada, Italy, Britain, Russia and France -- were devoted to the economy on Monday morning. Fifty percent of the world's economic output comes from the G8 group.
Several statements were expected on commitment to free trade and greater corporate responsibility in the wake of accounting scandals of the kind that brought down U.S. energy giant Enron.
PRESSURE ON EUROPE, ECB
With stagnation or worse threatening economies like Germany, Japan and Italy, Italian Prime Minister Silvio Berlusconi said on Sunday currencies would be discussed and also highlighted hopes of a cut in interest rates in the 12-nation euro zone.
Berlusconi, whose country takes over the European Union's rotating presidency in July, said ahead of a key meeting of the European Central Bank's rate-setting council on Thursday:
"A decision to cut rates might be in the air," he said. "And I think it's necessary."
Many are arguing for a euro zone rate cut for two reasons -- the traditional one that it helps growth by reducing business borrowing costs; the second being that it could tame the euro's rise against the dollar.
President Bush said in interviews ahead of the summit Washington continued to back a strong dollar even if financial markets seemed to be putting a value on the currency which went against the grain of that policy.
Just what that policy is has never been officially spelled out since it was established in the mid-1990s, but financial markets feed on every word or expression, no matter how cryptic, for signals on when to buy and sell various currencies.
So far the markets seem to be putting little faith in such comments and have instead been turning negative on the dollar, on the basis that soaring U.S. current account and budget deficits are now a real risk as well.
The dollar, down more than 10 percent against the euro this year, hit an all-time low against the European currency in the weeks after comments by U.S. Treasury Secretary John Snow, who said when G8 finance ministers met in France in mid-May that recent currency movements had been relatively modest.
In day-to-day trading, the dollar gained some ground against the euro EUR= on Monday morning, up about 0.7 percent, with traders saying the move was driven by better sentiment on U.S. share prices and the fact that G8 leaders were addressing the matter.
Bush and French President Jacques Chirac, the summit host, were due to hold a face-to-face meeting of about 30 minutes on the summit sidelines, at about 1000 GMT.
While the dollar fall poses new questions in Europe, it is an old problem for Japan.
Prime Minister Junichiro Koizumi was expected to repeat at the G8 meeting Tokyo's worries that an overly robust yen was an obstacle to recovery in a country that has been stagnant or worse for a decade.
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