G-7 Vows to Stabilize CurrenciesBy Steven Mufson
The Washington Post
Economic leaders of the Group of Seven major industrial powers committed themselves to stabilizing international currency trading at a meeting in Washington Saturday, but they stopped short of spelling out any measures to bring calm to chaotic European markets.
European finance ministers and central bankers plan to meet here this afternoon to review the results of Sunday's French referendum on the Maastricht treaty, the accord designed to bring about closer European political and economic unity.
A rejection of the treaty might reignite turmoil on European markets and the European ministers will discuss further measures Sunday, depending on the outcome of the vote. Polls close 8 p.m. in France, or 2 p.m. Eastern time in the United States.
The outcome of the vote is considered too close to call, but French Finance Minister Michel Sapin said France is ready to deal with any financial-market instability that may occur. "We will take adequate measures," Sapin said, without elaborating.
U.S. Treasury Secretary Nicholas F. Brady said the seven-hour G-7 session Sunday was cordial without "a lot of of finger-pointing."
But German officials early in the day bristled at British and U.S. suggestions that Germany was responsible for the crisis and they said Germany would not bow to pressure from other G-7 members to lower German interest rates in order to relieve pressure on other European currencies.
"Neither the German finance minister nor the Bundesbank president would be in a position to ... promise (lower rates)," German Finance Minister Theo Waigel told a news conference Saturday morning.
The G-7 ministers also discussed how they could put together the European coordinated exchange rate system, but reached no agreements. In addition to the United States, Germany and France, other members of the G-7 are Britain, Italy, Japan and Canada.
Italy indicated a desire to reenter the European rate mechanism (ERM) as early as Tuesday, G-7 sources said, although whether that is possible will depend largely on what happens in currency markets Monday. Italy was forced to drop out of the coordinated system of European exchange rates last week when it could no longer prop up its currency, the lira, against an avalanche of selling by currency traders last week.
Britain, which pulled out of the European system before Italy, set three conditions for the pound's reentry into the ERM.
"The first is that turmoil must be over on the foreign exchange markets," said Britain's finance minister, Chancellor of the Exchequer Norman Lamont. He said the second was that the British economy and that of Germany should "be more in sync." Lamont said the two should be nearer in terms of the economic cycle and closer in terms of interest rates. The third condition for reentry, he said, was that there should reforms in the workings of the ERM.
He declined to give details of what reforms Britain is seeking.
There seemed to be a certain amount of fatalism about what Monday would bring on the markets. Brady said that the $1.5 trillion worth of currency transactions settled every night at the New York Federal Reserve was "a mighty river" and added that "currencies will seek the right price levels."
The ministers also agreed in principle to a rescheduling of the $70 billion debt of the former Soviet republics. The details were not set, but it is likely to resemble other reschedulings agreed to by major economic powers, involving a grace period during which no payments would be required.
Russian central bank governor Viktor Gerashchenko, who was part of a Russian delegation that met with G-7 ministers Saturday afternoon, said that he hoped that details of the debt rescheduling would be ironed out with the help of the International Monetary Fund over the next week to 10 days.
As the finance minister and central bankers from the G-7 countries struggled to deal with the international economic upheavals and slow global growth, President Bush Saturday issued an unusual invitation to top officials gathered in Washington for the annual meeting of the International Monetary Fund. With the stagnant state of the U.S. economy a major issue in the election, Bush invited the IMF officials to a special meeting at the White House Sunday.
Saturday's meeting followed a week of turmoil in European financial markets that culminated in bitter exchanges between top officials in Britain and Germany over who was at fault for the crisis that put Europe's economic future at stake.
Following intense pressure from currency speculators, Britain, whose economy already is in recession, was forced to raise interest rates to support the pound and when that didn't work, suspended its participation in the European Monetary System. Italy followed a day later, throwing into doubt the system that was designed to bring stability and prosperity to modern-day Europe.
In addition, by the end of the week, Spain had devalued its currency, Greece had raised interest rates sharply to protect the drachma and even the French central bank had been forced to intervene to protect the franc.
All this ran counter to the goal of the European Monetary System, which is designed to limit sharp changes in values between currencies, making it easier for companies and manufacturers to plan and trade with the knowledge that they will not suffer unexpected losses as a result of currency changes.