8 February G7 finance ministers’ meeting

Date: 13/02/1997

FINANCE ministers from Canada, France, Germany, Italy, Japan, the UK and the United States agreed on the level the US dollar should stay at to prevent it from undermining European growth. When they met two years ago, EU members considered the dollar was too low, allowing US exporters to undercut their European counterparts. This time, after the dollar's steady rise over the past year, Europeans said it had gone up enough. “We are satisfied with the dollar,” said German Finance Minister Theo Waigel. “We wanted a stronger dollar, and that is what we have.” The dollar's rise has helped boost European exports, enabling EU economies to grow as member states race towards the deadline for a single currency in 1999. But Union governments fear that too much of a rise could be destabilising. Japan has also been a victim of the strengthening of the dollar - the US currency has risen 50&percent; against the yen in the past two years. Tokyo finance bureau chief Eisuke Sakakibara said Japan would work with G7 partners to bolster the yen if it fell further.

DURING the G7 meeting, European participants gave their North American and Japanese counterparts a status report on EMU. Beforehand, Canadian officials said they were worried that failure to meet the single currency deadline could create monetary turmoil and protectionism in Europe. But they expressed the hope that currency union would make Europe more attractive as an investment destination, as well as simplifying customs procedures for foreign exporters. They also want G7 partners to consider the euro's prospects as an alternative reserve currency to the US dollar.

ALSO on the agenda were the world economic outlook, debt relief for poor nations and increased bank surveillance. Waigel forecast a 1997 growth rate of between 2.25&percent; and 2.5&percent; - “significantly better than we could have hoped for six months ago”. But, speaking only days after Germany reported

its highest unemployment rate since 1933, Waigel acknowledged the problem. “Growth alone is not enough to solve labour market problems,” he said. Bundesbank President Hans Tietmeyer also had some grim words for Europe, saying: “I think the world economy is relatively healthy but, unfortunately, I cannot say the same thing for continental Europe. There is a need for structural reform and more flexibility.”