France, Germany to press for US deficit cuts

25th January 2005, Comments 0 comments

PARIS, Jan 24 (AFP) - France and Germany will urge the United States at next month's Group of Seven financial meeting to reduce its gaping twin deficits, which undermine the dollar, while admitting their own responsibilities in the interplay of currencies.

PARIS, Jan 24 (AFP) - France and Germany will urge the United States at next month's Group of Seven financial meeting to reduce its gaping twin deficits, which undermine the dollar, while admitting their own responsibilities in the interplay of currencies.

French Finance Minister Herve Gaymard once again tackled the foreign exchange problem after a Franco-German economic and financial meeting in Paris with his counterpart Hans Eichel and the two sides' central bankers.

"We are convinced that the imbalances at the source of the dollar's structural decline - in other words the swelling US current account deficit - persists, and that everything must be done to remedy this," Gaymard said at a news conference after the meeting.

"Europe until now has borne too big a share in the adjustment," he said, adding that the next meeting of G7 industrialised countries' finance ministers, in London February 4 and 5, "will be therefore the occasion to discuss this question with all the partners to make precise commitments."

Besides France, Germany and the United States, the G7 groups Britain, Canada, Italy and Japan.

The huge US current account and budget deficits have pushed the dollar lower, making euro-denominated exports less competitive. Weak economic growth in the 12-state eurozone has been mainly blamed on lagging exports.

Gaymard called for "a coordinated solution based on the commitment of the various zones concerned to establish in the short term the concrete measures needed to reabsorb the imbalance."

However Eichel and Christian Noyer, the governor of the Bank of France, were more restrained than Gaymard, insisting that everyone had their own work to do.

"The reestablishment of balances is possible only if everyone plays his role," Eichel, adding that "there will be no spectacular decision at the G7."

Noyer said the G7 countries share a vision of what should done to shore up the world economy and to secure euro-dollar stability but joint action remained complicated.

"We hope that the Americans will take measures against their deficits, Europe should do more for growth and Asia should engage in greater currency flexibility," he added.

But "an overly sharp structural change" would be "bad for everyone," he noted.

Asked about what could be done to induce the United States to take steps to stem the slide of the dollar, Noyer said: "There is an overall vision that we are soon going to re-affirm in London and which is consensual.

"The task now is to put it into practice, which is always complicated."

"Each country has reforms or improvements to carry out in its own domain, in its own economy," the French central bank governor said.

Economists have repeatedly warned that the United States cannot maintain its huge budget and current account deficits, which make foreign investors uneasy and reluctant to support the dollar.

"The United States cannot continue with such a deficit, it must work to balance savings and investment," Noyer argued.

"As for Europe, it must improve its growth potential by structural reform," he said, adding that Japan faced similar challenges.

"Major emerging economies in Asia must go in the direction of taking greater responsibility for global demand, which could come through modifications in exchange rates or in market opening."

At the same news conference, German central bank head Axel Weber said France and Germany should be able to hold their public deficits this year to less than three percent of gross domestic product, as stipulated in the EU's 1997 Stability and Growth Pact.

"I think that this year our two countries should be able to stay within the three percent limit, which would certainly give them more possibilities given an improvement in growth potential," he said. "Stagnation in Europe has been largely overcome, growth remains modest but should pick up in the years to come."

© AFP

Subject: French News

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