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G7 blame each other for economic slowdown

Mike Dolan

Saturday, July 7, 2001 at 21:00 JST

ROME - Finance ministers of the Group of Seven nations gathered for a one-day meeting in Rome on Saturday amid divisions between the United States and Europe over who is most to blame for the ailing global economy.

Ministers, convening in the 16th-century Villa Madama overlooking Rome, will map out the economic and financial agenda for the July 20-22 summit of G7 leaders in Genoa.

But disagreement has broken out over which country or region needs to do most to help the world recovery, amid anxiety in world financial markets about the chances of a rebound in business activity and confidence this year.

Europeans are determined not to be singled out for criticism while the United States insists it has done nearly all it can to revive global activity.

Germany and France reacted sharply to U.S. suggestions they were not taking on what Treasury Secretary Paul O'Neill described as a "locomotive role" in the world economy.

German Finance Minister Hans Eichel, speaking to the press before the G7 meeting later on Saturday, said it was "nonsense" to suggest Germany was at risk of entering a recession and that there were a number of positive signs for Europe's largest economy.

"In the triad," Eichel said, referring to the United States, Japan and the euro zone, "the euro zone is still the strongest part although it is now showing a clear slowdown."

He said the United States was experiencing a far stronger slowdown and that Europe had already done its part with major tax cuts that came into force on January 1 - well before the United States implemented its own tax cuts.

Eichel's comments echoed those of French Finance Minister Laurent Fabius, who issued an unusually blunt pre-meeting statement on Friday saying the United States was the main cause of global economic slowdown.

"We have to look at the essentials, and there are two," he said. "The main origin of the current slowdown is the American slowdown, and the rise in oil prices."

The spat comes amid renewed volatility on global financial markets and concerns about how slow the U.S. economy has been to react to the Federal Reserve's six interest rate cuts this year and the Bush administration's $1.35 trillion tax-cut program.

The European Central Bank's reluctance to cut interest rates because of above-target inflation was also a growing concern outside Europe. Japan's plan to stimulate its moribund economy with banking and fiscal reforms still needs to be tested.

O'Neill came to the meeting convinced U.S. tax and interest rate cuts, aimed at averting a full-blown recession in the world's largest economy, have not been matched by aggressive growth-boosting policies from all his G7 partners.

"We are...doing our part to contribute to strong and stable growth worldwide," O'Neill said on Thursday before departing for Rome. "Europe and Japan...can play a locomotive role and they need to play a locomotive role as well."

The Japanese delegation, meantime, was expected to be asked to detail its plans for dragging the world's second-largest economy out of its decade-long economic funk.

Japanese Finance Minister Masajuro Shiokawa said in Rome on Friday there were various ways his government could keep Japan from tipping back into recession, but offered few details.

"What we can say is that we will definitely not let the economy turn to negative growth."

Saturday's meeting kicked off with a series of bilateral sessions and briefings.

As well as the growth outlook, the Rome G7 meeting will focus on preparing other documents for the G8 summit, sources said, including on bank reform, development and debt relief.

The absence of central bankers at Saturday's meeting will limit any debate on monetary policy. Several delegations have said there will be no formal discussion on currencies despite the dollar's surge to a 15-year high on a trade weighted basis.

Italy's Treasury Ministry said the blocking of a proposed merger between General Electric and Honeywell by the European Union would be discussed.

Ministers will also discuss the international financial system and the arguments of globalization's critics, particularly in view of expected mass demonstrations at Genoa.

There will be a working lunch attended by World Bank President James Wolfensohn and the heads of the Inter-American Development Bank, Asian Development Bank, African Development Bank and the European Bank for Reconstruction and Development.

The G7 is expected to issue a tough set of demands on these multilateral development banks - complete with deadlines - to ensure that the global lenders become more effective, according to a draft document obtained by Reuters on Friday.

The one-day encounter will end with a meeting with a delegation from Russia, a member of the G8, but not the G7. In their meeting with the Russians the ministers are expected to discuss Moscow's lack of progress in combating money laundering. (Reuters News)

-- (M@rket.trends), July 07, 2001

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POSTED AT 5:23 PM EDT Saturday, July 07

Martin welcomes development reforms at G7 meeting

Associated Press and Canadian Press

Rome - Canada's finance minister welcomed the call for continued reform of multilateral development banks - including the World Bank - by the Group of Seven finance ministers meeting Saturday in Rome.

"The multilateral development banks have made considerable progress in improving their efficiency and effectiveness over the last few years," Paul Martin said in a release after the one-day meeting.

"This progress must continue if they are to carry on in their crucial role combating poverty and supporting equitable, sustainable development."

Mr. Martin met his counterparts from the world's richest countries. Gathering in a Renaissance villa on a hilltop overlooking Rome, the finance ministers hammered out broad plans to revive the economy - and downplayed dismal economic data.

The recommendations for reform are part of the report Strengthening the International Financial System and the Multilateral Development Banks, which was released Saturday by the finance ministers.

The report includes calls for strengthened co-ordination among the multilateral development banks - including the World Bank and the European Bank for Reconstruction and Development - to avoid overlap or duplicated effort. The report also calls for improved internal governance, particularly through increased transparency and accountability.

The G7 report also recognizes the value of increased investment in critical social sectors, such as education and health, as being essential to sustained poverty-reduction.

A second report, Fighting the Abuses of the Global Financial System, will also be released. It focuses on international efforts to combat money laundering and harmful tax practices and the need for improved supervisory and regulatory practices in some offshore financial centres.

Both reports will be presented to a summit meeting of G8 leaders - the G7, plus Russia - later this month in Genoa, Italy.

An upbeat U.S. Treasury Secretary Paul O'Neill insisted the gloomy global economy is poised for a rebound,

"Higher is better but this is not terrible," Mr. O'Neill assured his colleagues at the one-day G7, meeting. "There is some perspective required here as to where we are."

The faltering U.S. economy should climb to growth rates above 2 per cent in the fourth quarter of this year and above 3 per cent next year, Mr. O'Neill predicted.

The optimistic forecast contrasts with that of many economists who expect U.S. growth for the just-completed second quarter to come in below the first quarter's 1.2-per-cent rate.

But Mr. O'Neill pointed to a list of recent economic figures that indicate the U.S. economy could be headed for a turnaround, including record car and truck sales, high levels of home-buying and relatively low unemployment.

The U.S. economy, which is a major motor of global growth, is also expected to be boosted by a $1.35-trillion tax cut and a series of interest-rate reductions by the U.S. Federal Reserve.

"The corrections that are taking place in the U.S. economy are putting us on a footing that will put us to higher rates of real growth fairly soon," Mr. O'Neill said. He declined comment on whether Japan and Europe are doing enough to combat the global slowdown, saying: "We're not here to throw rocks at each other."

The G7 ministers generally agreed the global economy had slowed down more than expected but remained confident sound economic fundamentals and strong international co-operation could fuel renewed expansion.

Among measures recommended by the ministers to bolster growth was a plan for economists to go through their countries region by region, identifying structural obstacles to growth. The ministers also recommended launching a new round of World Trade Organization negotiations to open more borders to free trade, another action that could boost growth.

To further shore up the economy, the ministers agreed to strengthen the international financial system, liberalize access to capital markets and discuss restructuring debt relief.

Japan's economic plans won high marks from the assembled ministers, with Mr. O'Neill winning a commitment from Japanese Finance Minister Masajuro Shiokawa that they will be in motion by this autumn. The Japanese economy shrank at an annual rate of 0.8 per cent in the first quarter. The Japanese government has pledged to tackle a number of thorny issues, including measures to help banks write off huge sums of soured loans and steps to rein in wasteful public spending.

The European Union was also optimistic, despite Germany and France - the region's biggest economies - slashing growth forecasts in recent months.

"The slowdown is sharper than we envisaged," EU Monetary Affairs Commissioner Pedro Solbes said. "But European growth figures are higher than those of the U.S. and Japan."

EU economic growth is expected to come in between 2 and 2.5 per cent this year, Mr. Solbes said, adding various tax-cut policies in some EU countries will help growth rates, as well as stricter government spending.

Earlier in the day, however, German Finance Minister Hans Eichel, stressed the euro zone's dependence on a quick U.S. rebound.

-- (M@rket.trends), July 07, 2001.

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G7 Banks on U.S.-Led Rebound

July 7, 2001 4:19 pm EST

ROME (Reuters) - The Group of Seven richest nations on Saturday sought to calm worries over a slowing global economy and cool a transatlantic spat about who was most responsible for ensuring a recovery.

U.S. Treasury Secretary Paul O'Neill said the United States, suffering its sharpest economic slowdown in a decade, is recovering and would return to higher growth rates soon.

Italian Economy Minister Giulio Tremonti, host of the afternoon G7 meeting in Rome, said the U.S. economy was expected to grow by 3.0 percent in 2002, from just over 1.0 percent this year.

Tremonti said the overall tone of the meeting was fairly positive in terms of the outlook for European growth.

O'Neill was also quick to deny any row with European delegates had developed. He said he had no disagreement with French Finance Minister Laurent Fabius, who issued an unusually blunt pre-meeting statement on Friday saying the United States was the main cause of global economic slowdown.

Finger pointing on who should shoulder the burden of lifting the world economy started after O'Neill said on Thursday that Japan and Europe needed to play a "locomotive role."

Both Fabius and German Finance Minister Hans Eichel replied before the meeting, insisting European growth, while slowing, was still well in excess of that in the United States and the root of the economic malaise lay on the other side of the Atlantic.

Fabius too rowed back from any public spat with the United States after the meeting.

"The word pronounced today from all my colleagues was 'cooperation' and not blaming one another."

Britain's Gordon Brown, more pessimistic than most on the world outlook, earlier said all members had to play an equal part in supporting the economy.

"The slowdown has started in America and Japan and spread to Germany and France. The world growth rate has been halved and we may not yet be at the bottom of it," he told Reuters.

"The message today is that by cooperation, by working together, with all continents playing a part, we can do a great deal more to restore the growth of the world economy."

Japanese Finance Minister Masajuro Shiokawa said on Saturday he had told his G7 counterparts that Japan's economy was likely to be weak "for a while" but his government had several plans afoot to prevent outright recession.

"The economy will be weak for a while, but we will take steps to ensure there will not be minus growth."

The G7 also expressed support for International Monetary Fund initiatives in Argentina and Turkey and called for their full implementation, a document drawn up for G7 finance talks and obtained by Reuters showed on Saturday.

Emerging markets around the world have been roiled in recent weeks.

-- (M@rket.trends), July 08, 2001.