Discord looms as finance chiefs meet on subprime crisis
Agence France-Presse
First Posted 10:13:00 02/08/2008
TOKYO -- World finance chiefs will try to bolster confidence in the faltering global economy when they meet Saturday amid signs of trans-Atlantic friction over how to respond to recent market mayhem.
Washington's calls for other major economies to boost domestic demand seem set to fall on deaf ears as Japan and European nations are loath to worsen their public finances to tackle what they see as largely a US-made crisis.
European nations for their part are increasingly concerned about the weakness of the dollar and the yen against the euro, which acts as a brake on their exports.
The Federal Reserve has slashed interest rates by more than two percentage points since September amid growing fears that the US economy is slipping into recession, contributing to the weakness of the greenback.
But the United States and Japan have shown little appetite for any shift from the G7's well-worn call for currencies to reflect fundamentals.
"The Europeans are still concerned they're bearing the brunt of the necessary currency adjustment," said National Australia Bank analyst John Kyriakopoulos.
"Obviously the message is coming out of Japan that currencies won't be at the top of the list of topics for discussion," he said.
The United States has said it will call on its G7 partners to support its efforts to bolster growth amid signs of a widening fallout from the US housing slump and related credit crunch.
But European nations, notably France, appear upset by what they see as a lack of sufficient trans-Atlantic coordination on the policy response to the credit crunch sparked by a wave of defaults on US subprime, or risky, mortgages.
Europe will press the United States to show "more cooperation" in dealing with the global financial crisis, France's European minister said this week.
"It would have been better if there was a more cooperative attitude -- exchanges between treasuries, central banks, fewer unilateral movements before the G7 meetings," Jean-Pierre Jouyet told AFP in an interview, referring to recent interest rate cuts by the US Federal Reserve.
Analysts, however, questioned whether it was realistic to expect the Fed to time its interest rate cuts based on the schedule of the G7 meetings.
"I think the Fed had to act quite quickly given the conditions that were prevailing at the time," said Kyriakopoulos.
One area where G7 ministers may find more common ground is on calls for greater global market transparency in light of the subprime turmoil.
The G7 must "take international action to increase stability and resilience by strengthening risk management by banks, including stress testing and liquidity management," British finance minister Alistair Darling said this week.
Germany's deputy finance minister Thomas Mirow said his country had clear proposals to improve the transparency and regulation of financial markets.
And he called for the International Monetary Fund to play a more important role in observing financial markets and issuing alerts as crises begin to emerge.
The role of ratings agencies, which have been criticised for not flagging up the impending global credit woes, is also expected to be discussed.
Sovereign wealth funds, the new key players in global financial markets, are also set to come under scrutiny at the G7 meeting.
The funds -- which are owned by countries like China, Russia and the Gulf oil states and invest in private companies in Europe and the United States -- are coming under growing pressure from recipient nations to be more transparent.
Greater transparency "is the way to provide reassurance that investment is made for commercial reasons and not driven by political considerations," Britain's Darling told a gathering of bankers this week in London.
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