Thursday, February 05, 2004

Group of 7 - Europe - Outsider

As Group of 7 Gathers, Europe Looks Like an Outsider

When finance ministers of the Group of 7 leading industrial countries convene on Friday in Boca Raton, Fla., the European delegation may find itself stranded on the sidelines.

The fall of the dollar against the euro has frustrated exporters and political leaders in Europe, and there is little hope that they can reverse the policies of either the Bush administration, which seems content to let the market push the dollar downward, or Asia's central banks, which have intervened heavily to curb the rise of their currencies against the dollar.

"The U.S. and Asia have entered a symbiosis, in which Asia is financing the American recovery," said Thomas Mayer, the chief European economist for Deutsche Bank in London. "For Asia, that's fine, and for the U.S., that's also fine. The problem is for the bystander."

European officials seem resigned to their currency's bearing the brunt of the dollar's downward adjustment. Exchange rates are likely to be Topic A among the United States, Japan, Germany, France and other countries, but few here expect the Boca Raton meeting to yield more than a general statement, carefully worded to avoid roiling the markets.

Similarly, the European Central Bank is not expected to lower interest rates when its policy board meets here in Frankfurt on Thursday, even though many analysts worry that the surging euro could derail Europe's fledgling recovery by dampening exports. The consensus forecast is that the bank will keep its benchmark short-term interest rate at 2 percent.

So far, the bank's president, Jean-Claude Trichet, has limited himself to speaking out against "brutal" movements in exchange rates - a strategy known as verbal intervention, which analysts said had been effective in slowing the euro's rise in recent weeks. ...Continued

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