ESSEN, Germany, 10 February 2007 — High oil prices constitute one of the biggest risk factors to the growth outlook for the global economy, Bundesbank President Axel Weber said yesterday.
“We’ve been in a phase of very sold growth” in the global economy for the past five years, with momentum this year expected to reach five percent, Weber told the introductory news conference of a meeting of G-7 finance ministers here.
But there were risk factors that could jeopardize that favorable outlook, and “the biggest one” would be if oil prices were to remain stuck at high levels, the German central bank chief said. As head of the Bundesbank, Weber also sits on the decision-making governing council of the European Central Bank.
German Finance Minister Peer Steinbrueck told Reuters yesterday the yen’s weakness is not hurting the European economy. Asked if there was any evidence that the weak yen was damaging Europe, Steinbrueck told Reuters television in an interview: “No, I don’t think so.” “We had a very, very advantageous trade balance during all the last year. This didn’t affect any other neighbor in Europe negatively,” added Steinbrueck, who is chairing a meeting of G-7 finance ministers in Essen, Germany yesterday and today.
Germany’s trade surplus set an annual record in 2006, widening to 161.9 billion euros ($210.3 billion) as exports surged 13.7 percent to 893.6 billion euros. Currencies will be a topic for discussion at the Essen meeting of finance officials from the G-7 — Germany, the United States, Japan, Britain, France, Italy and Canada.
Other euro zone countries have complained loudly about the Japanese currency, fearing its descent to record lows against the euro is damaging their economies by making European goods and services too expensive compared with those from Japan.
But they have won no support from the United States, which says the yen’s value is set fairly — a position echoed by Canada. Britain has remained silent and Japan has played down the issue, saying the yen is unlikely to dominate the talks. The G-7 finance ministers will also address hedge fund transparency at the Essen meeting, with Germany concerned about the systemic risks the funds pose.
“We are not talking about regulation,” Steinbrueck said.
“There are many experts, many governments which are interested in discussing the potential systemic risk of hedge funds ... how to prevent such potential risks, because worldwide we don’t need any financial crisis like the one we faced during the 1990s,” he added. “We are at the very beginning of that discussion,” he said. Free-wheeling and loosely policed, hedge funds have become a powerful market force, originally catering to the ultra-rich and institutions, but increasingly drawing clientele from the less well-to-do. Their assets have doubled in the United States to more than $1.3 trillion in the last five years. Steinbrueck said G-7 finance ministers might ask their deputies to talk to hedge funds “because in my eyes they should by themselves be interested in preventing such risks.” Steinbrueck also said yesterday he was in favor of opening up the G-7 bloc to emerging market countries such as Russia and China.
“We’re in a process of expansion of the G-7, which the way I see it will eventually result in the full membership” of Russia and China, Steinbrueck said.
“It doesn’t make sense for Russia not to be a full member,” said Steinbrueck, who is hosting the meeting.
Earlier, Russian Finance Minister Alexei Kudrin, who is attending the meeting in Essen as a guest, had complained that Russia deserved to join the G-7 finance group but was being kept out by the seven richest nations for political reasons.
“There are evidently political motives that stand in the way of our full membership of the G-8 finance group,” Kudrin told daily Die Welt newspaper.
“Russia successfully pursued its economic growth strategy last year and I believe that as finance ministers we are ready to meet in full G-8 format,” he added.
Meanwhile, the governor of the People’s Bank of China said yesterday he was in favor of making the yuan more flexible as the United States pressures China to speed up reforms and let the currency rise in value. “An increase in yuan flexibility is appropriate,” Zhou Xiaochuan told journalists on the sidelines of the G-7 finance summit here.
China stands accused of massaging its exchange rate to depress the yuan’s value and so boost the razor-sharp competitiveness of its exports, at the expense of US jobs.
Western countries have long been urging Beijing to let the yuan rise in value. China has embarked on measures to do so, but not as quickly as the US would like. Washington argues that the yuan’s low exchange rate exacerbates economic imbalances such as the vast US budget and trade deficits as versus the gigantic trade surpluses run up by Asian economies. US Treasury Secretary Henry Paulson recently turned up the pressure on Beijing saying: “China does not yet have the currency policy that we want it to have and that it needs. The international community will run out of patience with China unless the pace of its reform accelerates.”
