02 June 2003 06:17
Group of Eight leaders seek to reassure global investors, consumers
Group of Eight leaders were set to grapple with ways of galvanizing a sustainable recovery in an anemic world economy
plagued by a weakening dollar and deflation fears.
While the dramatic plunge in the dollar, about 20 percent down against the euro in recent months, has sparked fears
the trend could snuff out European and Japanese momentum, it was not clear if the leaders of Britain, Canada, France,
Germany, Italy, Japan, Russia and the United States would actually discuss the issue at their annual summit here.
French President Jacques Chirac, the summit host, has said the latest developments on currency markets would require
no particular comment.
But on Sunday his spokeswoman, Catherine Colonna, suggested that discussion of euro-dollar developments could indeed
take place.
Asked if the plunge in the dollar might be brought up, she replied: "We'll see."
Several hours later Greek Prime Minister Costas Simitis bluntly told reporters that the slide in the dollar and the
corresponding surge in the euro would not be on the agenda Monday.
"We are not going to discuss the dollar tomorrow," Simitis, whose country holds the rotating European Union
presidency, told a press conference.
The single European currency, which first traded in January 1999, last week soared to an all-time high of 1.1914
dollars before slipping back to 1.1781 on Friday.
The sliding dollar is a boon for US exporters. But by making their goods far more expensive and less competitive
overseas the corresponding surge in the euro could pose a major threat to the long-awaited recovery in Europe and
Japan.
The euro's gains have already taken a bite out of corporate earnings in France and elsewhere in the European
Union and financial markets have been hoping that G8 leaders will at least take public note of currency market
developments.
Amid suspicion that his administration is in fact pleased with a weaker currency, US President George W. Bush over
the weekend told Russian television that "our policy is aimed at a strengthening of the dollar."
"It's true that the value of the dollar is falling, which is against our policy," Bush said.
His comments were virtually the same as those he made in an interview with European and Arabic journalists in
Washington last week.
A source close to the delegations here said Sunday that G8 leaders would take "no particular coordinated
action" on Monday, such as a statement on exchange rates or a call for lower interest rates as a means of spurring
growth.
But Lorenzo Codogno, chief European economist with the Bank of America, said "there is no other policy tool than
lower interest rates to offset the euro shock."
"Should Mr. Duisenberg (European Central Bank head Wim Duisenberg) still have some doubts, the G8 heads of
government and state must be making it (the need for lower rates) loud and clear."
Interest rates in the 12-nation euro zone are currently higher than in the United States and have been held partially
responsible for the single currency's strengthening against the dollar.
The European Central Bank has so far been reluctant to ease monetary policy but its policymakers are set to convene
this Thursday and there has been speculation they will at last act to lower rates.
G8 leaders are expected to issue an economic statement on Monday asserting their confidence in chances for a global
rebound.
But for many analysts such optimism is hard to justify at a time when Germany is by some definitions in recession,
Japan is mired in deflation and US prospects remain uncertain.
Deflation has lately emerged as another menace to global momentum, as steadily falling prices squeeze corporate
earnings, threaten jobs and wages and unsettle stock markets.
Consumer prices are under downward pressure in Germany and in the United States, where Federal Reserve Chairman Alan
Greenspan has hinted that deflation could spur the US central bank to lower rates still futher.
Given the current state of affairs, "one objective of this summit is to show that there exists a real dialogue
among us that includes economic questions," said a French official who asked not to be named.
"We are going to talk about problems of common interest -- of world growth -- in which we all have a stake -- in
order to boost confidence."
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