G7 - четива за уикенда
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G7 ministers unlikely to seek exchange rates battle
By Alan Beattie
Published: February 6 2004 9:44 | Last Updated: February 6 2004 9:44
No one is expecting this weekend"s meeting of the Group of Seven finance ministers and central bank governors in Florida to be a love-in. As Jean-Pierre Jouyet, the director of the French Treasury, told reporters on Wednesday in a masterpiece of understatement: "This G7 will not be the easiest that I have known."
But it may prove less combative than he feared. A few weeks ago, it seemed that by this point the G7 would be in the midst of verbal jousting at the weigh-in ahead of the big fight.
But as the meeting has drawn closer, the Europeans" apparent withdrawal from confrontation over exchange rates has left most economists believing that the main event will be less exciting than the build-up.
At the previous G7 meeting in Dubai, the US proposed inserting a phrase about the need for flexible exchange rates into the communiquй. The Europeans signed up to the statement, believing it would put pressure on the Chinese and Japanese to let their currencies rise against the dollar, only to find themselves the victims of a giant bait-and-switch: the markets found the only currency they could drive up was the euro and promptly did so.
The likelihood that the US will agree to drop the call for flexible exchange rates in order to stabilise or reverse the dollar"s fall is very low. Referring to the currency agreements of the 1980s, which first massaged down and then stabilised the dollar, Marc Chandler, chief currency strategist at HSBC in New York, says: "Even if Dubai was a mini-Plaza Accord, Boca Raton is not going to be a mini-Louvre."
The US, which as the host controls the agenda, has insisted that "supply-side" issues such as structural reform will be the main focus of the meeting. John Snow, US Treasury secretary, answering questions on Capitol Hill this week, scampered away from the issue of currencies like a scalded cat. In an understatement to rival Mr Jouyet"s, he told lawmakers: "The subject of the dollar versus other currencies is a subject I stay away from because it can cause mischief."
A few weeks ago, eurozone finance ministers complained vociferously about the strength of the euro. But as the strength of the opposition from the US to a big change in the communiquй language became clear, a tactical consideration prevailed - the knowledge that there is nothing as damaging to credibility as publicly trying to affect the markets and failing.
The eurogroup finance ministers have since moderated their interventions to calling for stability in foreign exchange markets, coalescing around a stance taken in a statement it released last month: "We particularly stress stability and we are concerned about excessive exchange rate moves."
Indeed, with the euro having retreated some way from the psychologically important $1.30 level, some Europeans appear confident enough to point out the benefits of a strong euro. Ernst Welteke, president of the Bundesbank, said on Tuesday: "Currently, the strong euro allows us to keep interest rates at a low level in an environment where demand is picking up and excess liquidity persists." As Mr Chandler puts it: "Some in the ECB have evidently decided to make a virtue out of a necessity."
Meanwhile, since the Japanese have found that continued direct intervention can at least slow the yen"s rise against the dollar, the imperative for them to get into a public fight with the Americans is similarly low. The markets appear already to have assumed little change in the G7"s stance: the dollar has weakened a little against both the euro and the yen in recent days as hopes faded of a significant change in signal.
There is still a reasonable chance that the Europeans will manage to get some call for stability, or at least the avoidance of volatility, into the communiquй. They have at least some leverage: while it is in a stronger bargaining position, the US does not want the G7 meeting to break up in acrimony. And despite issuing a "prebuttal" on the subject, it may be vulnerable to attacks on its twin fiscal and current account deficits.
But economists warn that such a limited shift in the communiquй is unlikely to impress dollar bears. Medley Global Advisors, the well-connected international economic and political consultancy, polled its clients this week about potential outcomes of the meeting.
They found 43 per cent expecting no significant change in the communiquй and just over half expecting it to add some words about the need for stability. But less than a third thought that even the latter would cause the dollar to rise against the euro, and only 22 per cent though it would spark a dollar rally against the yen.
As Mr Chandler says: "We think the market wants to go into the G7 short the US dollar and stay there."
FT.com - Subscription page
G7 ministers unlikely to seek exchange rates battle
By Alan Beattie
Published: February 6 2004 9:44 | Last Updated: February 6 2004 9:44
No one is expecting this weekend"s meeting of the Group of Seven finance ministers and central bank governors in Florida to be a love-in. As Jean-Pierre Jouyet, the director of the French Treasury, told reporters on Wednesday in a masterpiece of understatement: "This G7 will not be the easiest that I have known."
But it may prove less combative than he feared. A few weeks ago, it seemed that by this point the G7 would be in the midst of verbal jousting at the weigh-in ahead of the big fight.
But as the meeting has drawn closer, the Europeans" apparent withdrawal from confrontation over exchange rates has left most economists believing that the main event will be less exciting than the build-up.
At the previous G7 meeting in Dubai, the US proposed inserting a phrase about the need for flexible exchange rates into the communiquй. The Europeans signed up to the statement, believing it would put pressure on the Chinese and Japanese to let their currencies rise against the dollar, only to find themselves the victims of a giant bait-and-switch: the markets found the only currency they could drive up was the euro and promptly did so.
The likelihood that the US will agree to drop the call for flexible exchange rates in order to stabilise or reverse the dollar"s fall is very low. Referring to the currency agreements of the 1980s, which first massaged down and then stabilised the dollar, Marc Chandler, chief currency strategist at HSBC in New York, says: "Even if Dubai was a mini-Plaza Accord, Boca Raton is not going to be a mini-Louvre."
The US, which as the host controls the agenda, has insisted that "supply-side" issues such as structural reform will be the main focus of the meeting. John Snow, US Treasury secretary, answering questions on Capitol Hill this week, scampered away from the issue of currencies like a scalded cat. In an understatement to rival Mr Jouyet"s, he told lawmakers: "The subject of the dollar versus other currencies is a subject I stay away from because it can cause mischief."
A few weeks ago, eurozone finance ministers complained vociferously about the strength of the euro. But as the strength of the opposition from the US to a big change in the communiquй language became clear, a tactical consideration prevailed - the knowledge that there is nothing as damaging to credibility as publicly trying to affect the markets and failing.
The eurogroup finance ministers have since moderated their interventions to calling for stability in foreign exchange markets, coalescing around a stance taken in a statement it released last month: "We particularly stress stability and we are concerned about excessive exchange rate moves."
Indeed, with the euro having retreated some way from the psychologically important $1.30 level, some Europeans appear confident enough to point out the benefits of a strong euro. Ernst Welteke, president of the Bundesbank, said on Tuesday: "Currently, the strong euro allows us to keep interest rates at a low level in an environment where demand is picking up and excess liquidity persists." As Mr Chandler puts it: "Some in the ECB have evidently decided to make a virtue out of a necessity."
Meanwhile, since the Japanese have found that continued direct intervention can at least slow the yen"s rise against the dollar, the imperative for them to get into a public fight with the Americans is similarly low. The markets appear already to have assumed little change in the G7"s stance: the dollar has weakened a little against both the euro and the yen in recent days as hopes faded of a significant change in signal.
There is still a reasonable chance that the Europeans will manage to get some call for stability, or at least the avoidance of volatility, into the communiquй. They have at least some leverage: while it is in a stronger bargaining position, the US does not want the G7 meeting to break up in acrimony. And despite issuing a "prebuttal" on the subject, it may be vulnerable to attacks on its twin fiscal and current account deficits.
But economists warn that such a limited shift in the communiquй is unlikely to impress dollar bears. Medley Global Advisors, the well-connected international economic and political consultancy, polled its clients this week about potential outcomes of the meeting.
They found 43 per cent expecting no significant change in the communiquй and just over half expecting it to add some words about the need for stability. But less than a third thought that even the latter would cause the dollar to rise against the euro, and only 22 per cent though it would spark a dollar rally against the yen.
As Mr Chandler says: "We think the market wants to go into the G7 short the US dollar and stay there."
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