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G7 Issues Stern Warning Over Euro, Oil
Rich nations Saturday issued a stern warning that they were ready to defend the world economy from the double jeopardy of high oil prices and a weak euro.
The Group of Seven industrialized nations, in a communique issued a day after unleashing their central banks in the first coordinated currency intervention since 1995, stressed concern over the euro and made plain they were ready to do it again.
"In light of recent developments we will continue to monitor (the market) closely and to cooperate in exchange markets as appropriate," the communique said.
They also called on oil producing nations to curb crude prices, which have trebled since early 1999 and cast a shadow over otherwise buoyant world growth.
"It is crucial for the world economy that OPEC and oil producing countries take actions to contribute to a reduction in oil prices and greater stability in oil markets," the communique said.
The European Central Bank spearheaded Friday's action, which marked the first time it had intervened since its birth 20 months ago, and its president Wim Duisenberg said there had been a common agreement that the euro had fallen too far.
"We all came to the conclusion that recent forex movements had gone far beyond what was justified by fundamentals," he told a news conference, adding the U.S. authorities had pledged future foreign exchange market cooperation.
Stressing how much was at stake, the G7 painted a bright picture for world growth.
"Prospects for continued expansion in industrialized countries and the world economy more generally have further improved in recent months as underlying fundamentals strengthened," it said.
"A more balanced and therefore more sustainable pattern of growth among our economies is emerging," it added.
U.S. Forex Cooperation No Contradiction
Markets had been particularly surprised when the U.S. joined in Friday because there had been no sign of a shift in Washington's view that a strong dollar was a national asset.
Duisenberg explained that none had been necessary.
"The U.S. thinks a strong dollar is in the interests of the U.S. and equally Europe thinks a strong euro is in the interests of Europe -- and we can live together," he said, adding that intervention could take place when it was "deemed appropriate."
The euro rose sharply in response to the Friday action, although it pared initial gains to end at around $0.8720, and can be expected to advance further when markets open in Asia on Monday in response to the clear menace of further buying.
Intervention Defends Good Name Of Euro
A near-30 percent slide in the currency's value since its launch last year has defied the efforts of the ECB and euro zone finance ministers to talk it higher and stretched their credibility with financial markets.
But French finance minister Laurent Fabius -- who held the news conference jointly with Duisenberg -- said escalating the war of words into solid deeds had repaired the damage.
"What has occurred certainly strengthened the credibility of the euro group," he said.
Analysts had demanded to see the color of the ECB's money before granting the euro any chance of calming a crisis of confidence sparked by its slide.
This had hurt European public opinion, not least in Denmark which will vote on entry into the single currency in a national referendum on September 28.
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