Dollar to dominate G20 Berlin meeting
17 November 2004
BERLIN – Members of the so-called Group of 20 (G20) rich and emerging economies are meeting in Berlin this weekend against the background of signs of slowing global growth and tensions between the world’s financial superpowers unleashed by the slide in the dollar.
Alarmed about the impact that the euro’s surge might have on European exports, leading members of the 12-member eurozone have stepped up their campaign calling on Washington to address the dollar’s decline that Wednesday pushed Europe’s common currency to a record high of more than USD 1.3030.
In particular, key European officials have been urging the new Bush White House to tackle the key problem behind the dollar’s recent drop, which has been market worries about the US’s twin deficits (the trade and budget deficits.).
“Action is needed now,” Germany’s deputy finance minister Caio Koch-Weser told the nation’s Der Spiegel weekly, echoing the worries expressed recently by European Central Bank chief Jean-Claude Trichet.
Koch-Weser told Der Spiegel the big US trade and budget deficits were “unsettling markets” adding that the outcome of the U.S. presidential election had not helped to dampen market worries.
Eurozone finance ministers meeting in Brussels this week set the stage for the weekend Group of 20 meeting with Dutch Finance Minister and current eurogroup chairman Gerrit Zalm telling reporters that recent sharp increases in exchange rates were unwelcome and that a U.S. policy to promote a strong dollar would be “helpful”.
Speaking during a trip to Europe ahead of the G20 meeting, US Secretary of Treasury John Snow’s insisted that Washington supported a strong dollar, saying that a strong dollar was in America’s interest but adding that the US also believed that it is up to the markets to set exchange rates.
Snow said Washington was aware the country’s deficit problems needed to be tackled telling the BBC in an interview: “In the United States we know that our deficit (is ) too large. It’s unwelcome, it needs to come down.”
But he also shot back at the Europeans saying that they also needed to deal with some of the obstacles to growth such as Germany’s inflexible labour market and the French pension system.
Indeed, analysts say the fresh of outbreak of tensions between the US and Europe over the greenback’s slide and America’s twin deficits are also likely to be a major theme at a weekend meeting of Group of Seven (G7) finance ministers which is likely to form part of the G20’s deliberations.
Germany currently chairs the G20 whose members include Argentina, Australia, Brazil, Canada, China, France, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi-Arabia, South Africa, Turkey, the United Kingdom and the US. The G7 comprises Britain, the US, Germany, France, Canada, Britain and Japan.
Analysts say the increasing US trade deficit with Asia and China’s booming economy means that Beijing could also face fresh calls in Berlin to revalue its currency, the yuan, which is currently pegged to the dollar.
Luxembourg Prime Minister Jean-Claude Juncker, has already suggested that China end its currency’s pegging to the dollar, which could also help to ease the current upward pressure on the euro.
But the Berlin meeting also comes at a critical time for the global economy with a raft of indicators pointing to growth starting to slow in three of the world’s key economic blocs – the US, Japan and the eurozone.
After chalking up a quarter-on-quarter growth rate of 0.5 percent during the second quarter, the eurozone grew by only 0.3 percent during the third quarter as this year’s surge in oil prices took its toll on the currency bloc’s economy.
The third-quarter growth was also below analysts’ forecasts and raised the prospect of a weak economic start to 2005.
However, signs that oil prices may have started to stabilise at least for the time being are likely to mean that the dollar and the US deficits will emerge as a key focus of the weekend gathering of finance ministers and G20 central bank chiefs in the German capital.
Trichet has also already raised the alarm about the swings on the currency market and the euro’s sharp upward shift against the dollar describing them as “brutal” and “unwelcome”.
In the meantime, the eurozone’s political leaders have added their voice to worries that the strong euro might derail the currency bloc’s fragile recovery with German Chancellor Gerhard Schroeder telling business leaders in Berlin Tuesday: “Everybody is concerned with the euro-dollar exchange rate and the impact… on exports.”
Subject: German news