Group of Seven summit could worsen matters for the dollar

July 06, 1994|By Bernard D. Kaplan | Bernard D. Kaplan,Hearst Newspapers

PARIS -- This week's economic summit could accelerate the dollar's current slide and wreak more damage than if the conference of the world's seven biggest economic powers were not being held at all.

Among the signs that the Group of Seven meeting, which starts Friday in Naples, Italy, could worsen matters:

* The German government's unexpected declaration Monday predicting that the world leaders at the summit will not take concerted action to prop up the dollar.

* The growing insistence by some European officials that the wobbly dollar is strictly America's headache. The Clinton administration must take unequivocal steps to put things right, these officials say, and not depend on the rest of the world to help get the United States out of what they call its self-made predicament.

* The new line taken by U.S. officials in briefing foreign journalists that the real problem is with the skyrocketing Japanese yen, not the plunging dollar.

Since world financial markets are anxiously waiting to see what happens at the summit before deciding whether to take another hefty whack at the battered U.S. currency, these developments hardly suggest that the Naples session will provide the reassurance needed to buoy international confidence in the dollar.

Doubts about the prospects for a major initiative to help the dollar sent the U.S. currency down against the mark and other European currencies yesterday. In New York, the dollar ended at 1.5826 marks, down from 1.5970 marks late Friday. The dollar closed virtually unchanged against the yen, at 98.88.

On Monday, German Deputy Finance Minister Gert Haller waved aside expectations of a summit rescue operation for the dollar, declaring such a move was unwarranted since the dollar's plunge has "had no significant effect" on the exchange rates of European currencies trading against one another.

His statement seemed to be a warning to U.S. Treasury Secretary Lloyd Bentsen, who said last week that the United States may ask Germany to lower its interest rates as part of a "symbolic" effort to bolster the dollar.

Mr. Haller's comment also is significant since he is responsible for preparing the policy position that Chancellor Helmut Kohl will take in Naples.

Christian Bawker, a Paris-based specialist on German economic policy, described Mr. Haller's remarks as "unexpected but in keeping with Bonn's long-standing tendency to disassociate itself as far as possible from U.S. economic and financial problems."

Germany's position was that the dollar's problems stemmed from America's clash with Japan over their trade imbalance and that "the Germans do not want to be seen as taking sides between Washington and Tokyo. They have their own economic ambitions in Asia," Mr. Bawker added.

However, Mr. Haller's declaration also may have reflected growing exasperation among Europeans at the frequency of crises involving the dollar.

A French official said yesterday that despite President Clinton's insistence that he wants a stronger dollar, "the financial markets are still convinced the falling dollar doesn't fundamentally displease Washington."

The official predicted that Mr. Clinton's recent statements to the foreign press supporting a strong dollar and saying that there is no economic reason for its fall would do little to remove this suspicion.

"If the Clinton administration wants its words to be taken at face value, it must act unilaterally and with real determination to reverse the dollar's downward trend," he said. "So far, there is little indication that it intends to."

The British weekly, the Spectator, accused the Clinton administration of saying, in effect, to the rest of the world: "[The dollar is] our currency and your worry."

But the periodical added: "Clinton has been telling us that . . . he has now learned enough to talk about a strong dollar and to put the Federal Reserve's money where his mouth is. . . . Now we shall see whether he bothers."

The latest line touted by U.S. officials here was interpreted by some analysts as an effort to exert pressure on Japan's new coalition government to open its markets further.

But Paul Wecht, an international monetary specialist here, called it a "maneuver to explain away half-baked Clinton administration policies [of reducing the dollar's value in order to boost U.S. exports to Japan] that brought on the crisis in the first place by deliberately weakening the dollar."

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