Atelier 17, article 14

William Drozdiak :
©  Washington Post, July 9, 2001.
                                                       U.S. Treasury Chief Upbeat
                                    But Europeans at G-7 Talks See No Quick Recovery
                                                                            by William Drozdiak

                                   ROME Treasury Secretary Paul O'Neill said over the weekend
                                   that the United States was poised for a significant economic upturn
                                   later this year that should help revive the world economy, provided
                                   that Europe and Japan do their share to stave off recession.

                                   At a meeting here of finance ministers from the world's Group of
                                   Seven leading industrial democracies, Mr. O'Neill said the United
                                   States, Europe and Japan must better coordinate policies to
                                   restore economic momentum at a time when all three regions have
                                   been suffering a downturn.

                                   "We all agreed that growth in each of our economies is crucial to
                                   prosperity around the world," Mr. O'Neill said Saturday after five
                                   hours of discussion with his peers.

                                   "We in the United States have taken strong measures in both fiscal
                                   and monetary policy to return our economy to a higher growth
                                   path," he said. "And I continue to believe that the prospects for
                                   long-term global prosperity are better now than at any time in our

                                   Mr. O'Neill cited a sustained boom in housing starts and
                                   near-record sales of cars and light trucks as evidence that the
                                   United States is about to begin a new period of expansion. After
                                   seeing the U.S. growth rate fall to 1.2 percent from 5 percent last
                                   year, he said, the American economy should resume expanding by
                                   more than 3 percent early next year.

                                   Several European finance ministers, however, said they did not
                                   share O'Neill's optimism. The chancellor of the Exchequer,
                                   Gordon Brown, said the global downturn had proved "more
                                   severe than expected" and that hopes for an early recovery might
                                   be premature, given the bleak forecasts for much of Europe and

                                   Afterward, analysts remained skeptical about the prospects for
                                   any concerted, fresh policy action by Europe to contribute to a
                                   turnaround in global economic prospects.

                                   The U.S. and European ministers openly disagreed before the
                                   meeting over who should be responsible for acting as the
                                   "locomotive" for the rebound. Frustration at the inability to directly
                                   influence persistently high energy prices was also evident.

                                   As a result, little in what was said is likely to calm the nerves of
                                   increasingly volatile international financial markets - always mindful
                                   of the history of G-7 disharmony and investor angst. A public
                                   U.S.-Europe dispute about interest rate policy in 1987 has
                                   frequently been cited as a trigger for the stock market crash that

                                   The G-7 meeting, which was called to prepare a summit
                                   conference on the global economy that will bring President George
                                   W. Bush and seven other leaders to Genoa, Italy, this month,
                                   opened with some acrimony after France and Germany took
                                   exception to Mr. O'Neill's call earlier this week for Europe and
                                   Japan to do more to reverse the world slowdown.

                                   Mr. O'Neill said before leaving for Italy that the United States was
                                   doing its part but that Europe and Japan "need to play a
                                   locomotive role as well." On Saturday he explained that the train
                                   he envisioned should be powered by a "three-engine locomotive"
                                   that featured Europe and Japan working with the United States.

                                   Finance Minister Hans Eichel of Germany dismissed as "nonsense"
                                   reports that his country would soon lapse into recession and said it
                                   was foolish to blame Europe for not doing enough when it was
                                   now the strongest among the three regional economic powers. But
                                   he welcomed Mr. O'Neill's upbeat prediction, saying a U.S.
                                   recovery "would be good news for all of us."

                                   The French finance minister, Laurent Fabius, said Europe was
                                   growing more quickly than the United States for the first time in a
                                   decade and should not be blamed. "We have to look at the
                                   essentials, and there are two," Mr. Fabius said. "The main origin of
                                   the current downturn is the American slowdown and the rise in oil

                                   Mr. Fabius said the United States should look to its own
                                   problems, notably the high level of individual debt and record
                                   number of personal bankruptcies. He said the United States
                                   needed to show greater discipline in cultivating domestic savings at
                                   a time when the country is running the biggest
                                   balance-of-payments deficit ever.

                                   In response, Mr. O'Neill expressed exasperation with
                                   comparisons of who was doing more to help the world economy.
                                   "We are not here to throw rocks at each other," he said.

                                   Other U.S. officials noted that the Federal Reserve Board had cut
                                   short-term interest rates six times this year, by a total of 2.75
                                   percentage points, and that Congress had recently passed a $1.35
                                   trillion package of tax cuts.

                                   In contrast, the European Central Bank has cut rates just once this
                                   year, by 0.25 percentage points, because it says that inflation
                                   remains a serious threat. And European governments have not
                                   accelerated plans for income tax cuts even though growth
                                   prospects have diminished steadily in recent months.

                                   Several ministers said a critical factor in the global economy's
                                   health will be whether Japan's prime minister, Junichiro Koizumi,
                                   fulfills his promise to carry out banking and fiscal reforms to pull
                                   the world's second-largest economy out of a decade-long slump.

                                   The soaring value of the dollar has been cited by U.S. exporters as
                                   another source of trouble, but the absence of central bankers at
                                   the G-7 meeting limited discussion about finding a new equilibrium
                                   for the world's major currencies. Europe's new single currency, the
                                   euro, dropped near its all-time low against the dollar last week -
                                   just over 83 cents.