G-7 Leaders Declare Calm Despite Pending Slowdown
The masters of the world economy declared a “state of business as usual” over the weekend, despite an air of emergency fueled by further cuts in growth forecasts and confusing signals from a new U.S. Treasury team.
Finance leaders from the Group of 7 club of wealthiest nations ended talks here late Saturday, fending off speculation that the United States’ “strong dollar” policy might come to an end and putting a brave face on the wider risks from a sudden, sharp slowdown in the U.S. economy.
New Treasury Secretary Paul H. O’Neill met his peers on Saturday after a string of media interviews in which he cast doubt on the need for such cooperative gatherings and, above all, whether he wanted to stick to the long-standing U.S. mantra that a strong dollar was in the nation’s interest.
By the time his G-7 debut finished, he was saying that the United States had not changed its dollar policy one iota, and peers from finance ministries and central banks in Canada, Japan and Europe were saying they believed nothing had changed either.
On a similar note, European Central Bank boss Wim Duisenberg left the key gathering saying nothing had come of the pre-meeting debate over the ECB’s refusal to follow other central banks with cuts in interest rates to keep the euro-zone economy firing. And the traditional G-7 communique, couched in the heavily opaque language that investors and markets agonize over, said little out of the ordinary on interest rates, currency policy or other forms of cooperation at the international level.
“We discussed developments in our exchange and financial markets. We reiterated our view that exchange rates among major currencies should reflect economic fundamentals. We will continue to monitor developments closely and to cooperate in exchange markets as appropriate,” the statement said.
Perhaps the main boost for the euro--which had flagged so badly last year that central banks intervened to drive it upward against the dollar--was that the currency did not require a mention as a cause of concern.
The G-7 acknowledged U.S. growth had slowed but said that the “economic fundamentals” of the economy that has grown faster than most others for a decade were still sound. It noted that Japan too was having trouble pulling out of the doldrums and said Europe’s growth prospects were looking favorable.
“Although global growth this year is likely to be somewhat slower than we expected when we last met, the basic factors that have supported sustained growth in many of the major industrial economies remain in place,” the statement said.
All that was despite news that the International Monetary Fund had cut its forecast for U.S. growth this year to 1.7%, below the 2% to 2.5% predicted by the Federal Reserve after it emerged late last year that the American powerhouse could be heading for a hard landing.
