G7 Seeks Consensus on Dollar Drop
Saturday February 7, 12:58 pm ET
By Gernot Heller and John Parry
BOCA RATON, Fla. (Reuters) - World financial leaders meeting in Florida struggled on Saturday for consensus on how to steady global currency markets amid European and Japanese worries a sliding U.S. dollar could spin out of control.
While comforted by a global economic recovery in the past six months, many finance ministers and central bankers from the Group of Seven wealthy nations are anxious about the potential currency fallout from huge U.S. trade and budget deficits.
The dollar's deficit-driven slide has accelerated since the G7 last met in Dubai in September and concluded that more flexible currency policies were needed around the world.
That statement was taken by most observers as a dig at countries like China that fix their currencies to the U.S. dollar. But European ministers say this needs to be spelled out in the statement that will follow the Boca Raton meeting.
Italian Finance Minister Giulio Tremonti said European ministers might push to alter the wording thrashed out in Dubai so it is clearly aimed at Asian economies.
The euro has risen some 10 percent against the dollar since the Dubai gathering, pinching European exporters.
"The hypothesis from the European side is referring to the need for more flexibility of Asian currencies," Tremonti told reporters before Saturday's meeting.
One way to ease European concerns might to be to "tweak" the Dubai statement to say that while flexibility was desirable, excessive volatility in relative currency values was not -- a bow to Europe's fears its recovery could be stifled by a soaring euro that makes its exports less competitive.
FACE-SAVING FIX
German Finance Minister Hans Eichel said as the formal G7 meeting began there was a general agreement that some progress must be made on currency policy, although what form that will take remained uncertain.
"We are all trying to find a common position," Eichel said of his counterparts from the United States, Britain, Canada, France, Italy and Japan. "Everybody knows that currency, which is a very sensitive subject, will be a main discussion point."
Other European officials, who requested anonymity, hinted at movement toward an agreement on the statement's language between the opening dinner on Friday night and the formal G7 sessions on Saturday.
"Things have moved forward since yesterday evening," a European delegate said. "It's moving toward a clarification."
Japan also wants more stable exchange rates -- which would save it money by requiring fewer forays into currency markets -- while reserving the right to buy dollars if needed to keep the yen from rising too rapidly.
But it likely would oppose a broad reference to Asian currency flexibility because this would be seen by markets as a rebuke from G7 for Tokyo's unilateral intervention.
Japan's Finance Minister Sadakazu Tanigaki met U.S. Treasury Secretary John Snow before the formal meeting on Saturday and told Snow Japan would continue to act to cap the yen if it moved out of line with the underlying economy.
WEALTH ON VIEW
Million-dollar yachts bobbed at anchor next to the 80-year-old hotel on Florida's lush "Gold Coast" as the finance ministers and central bankers debated inside how to keep expansion going among the world's wealthy nations while helping rebuild countries like Iraq.
The exclusive economic club will also look at ways to keep terrorism at bay by going after militant groups' funding.
Snow on Saturday said he felt the meeting should chiefly focus on sustainable expansion -- a message that plays well in America during a presidential election year.
"The focus of the conference, from my point of view, will continue to be growth and what we as ministers can do to build support for higher growth in domestic economies of our countries and the economies of the developing world."
G7 sources on Saturday said pledges to rein in national budget shortfalls were likely to be a central theme of the group's final communique.
However, the sources said the statement's wording would not be finalized until later on Saturday. Ministers said central bankers would be closely involved in that process.
The formal talks began at 9:00 a.m. (1400 GMT) on Saturday and are expected to wrap up with the final statement around 5 p.m. (2200 GMT).
Argentina may also come in for some heat. G7 officials who requested anonymity said Buenos Aires would be told -- either after the meeting or next week -- to be more flexible with private creditors in slow-moving debt renegotiation talks. Argentina has held firm with an offer of 25 cents on every dollar of nominal debt.
G7 sources said talks will also likely touch on how debt markets in emerging market countries -- which have been providing cheap funding for developing nations of late -- would be affected by rises in benchmark interest rates in the G7 economies. |
