The US urged a meeting of the Group of 20 leading economies not to resort to currency devaluations to boost exports, while a draft communique gave a gloomy assessment yesterday of the outlook for global growth.
The meeting of finance ministers and central bankers in Istanbul comes at a difficult time, with major economies running at different speeds, monetary policies diverging and Greece casting a new shadow over Europe.
US Treasury Secretary Jack Lew underlined the need to stick to existing commitments on exchange rate policy, a Treasury official said, pledges which include refraining from competitive exchange rate devaluations.
“Secretary Lew strongly emphasised... that we are highly focused on ensuring that US workers and firms play on a level playing field and no country should use their exchange rate to increase exports,” the official said.
The US Federal Reserve looks set to raise interest rates this year, a stark contrast to huge money printing programmes by the European Central Bank and Bank of Japan and impromptu rate cuts from India to Australia, Canada to Denmark.
A by-product of that is the dollar being driven higher while other major currencies tumble. There has generally been an acceptance in Washington that a weaker euro and yen is an inevitable consequence of actions to revive moribund economies, something the United States has consistently called for.
According to a draft communique for the meeting, obtained by Reuters overnight and intended for adoption later yesterday, the G20 welcomed the ECB’s quantitative easing – despite German concern – and said it would further support recovery in the eurozone.
In a nod to expectations that the Fed will raise interest rates, the draft said some advanced economies with stronger growth prospects were moving closer to “policy normalisation”.
But it cautioned: “In an environment of divergent monetary policy settings and rising financial market volatility, policy settings should be carefullycalibrated and clearly communicated to minimise negative spillovers.”
We certainly hope that Greece will stay in the currency union, but that remains to be seen
The draft welcomed the favourable outlook in some key economies but gave a gloomy assessment of the global economy as a whole, saying growth was uneven and trade slow.
It said G20 members would act decisively on monetary and fiscal policy, if needed, to combat the risk of persistent stagnation, although it said the sharp decline in oil prices would provide some boost.
“(There’s a) school of thought which is kind of winning in this world that the only way you can be credible and build greater confidence is if you’re honest about where things stand,” said one senior G20 official involved in the talks.
Germany, which boasts a record current account surplus, has been unbending in the face of G20 calls to spend more and boost demand. The draft communique also pledged to put debt as a share of output on a sustainable path.
The G20 officials look set to reject a Turkish proposal to set countries specific investment targets to spur a world economy which looks increasingly reliant on the US for growth.
The draft text made no specific mention of Greece, but its efforts to strike a new debt agreement with the eurozone dominated the agenda in bilateral meetings and other groupings on the sidelines, officials said.
Canada’s Finance Minister Joe Oliver said regulatory and financial reforms had helped diminish the risk Greece may pose to the eurozone, with Athens seeking a new debt arrangement and demanding a reversal of austerity.
Asked about the Greek finance minister’s description of the eurozone as a house of cards that would collapse if Greece left, Oliver said: “I would just say, he seems to be talking to his base.
“We certainly hope that Greece will stay in the currency union, but that remains to be seen,” he added.