No Bullets to Expend at September G-7

Article excerpt

It's September. Time again for central bankers and finance officials of the Group of Seven to search for common ground regarding interest rate, currency and economic policies.

But what we find is that the top dogs can spare few bullets, if any, this month to defend their elite policy coordination club. The group has earned the rap of being disfunctional its inability to agree to a common policy objective.

G-7 officials have paid lip service since January to the idea they abandoned their past inflation fight to embrace a pro-growth strategy for enhancing the world economy.

But experience this summer and current economic and political conditions in member countries suggest otherwise. Few will be willing to make concessions at home for the sake of the whole when they meet here around Sept. 19.

Germany's independent concerns about rapid money growth and inflation pressures caused it to step out of bounds this summer and raise interest rates, just when other G-7 nations were cutting interest rates and looking to the Bundesbank to follow suit.

This defiant action came embarrassingly close on the heels of the G-7's presidential economic summit in Munich, during which top German officials vowed to promote stronger world growth by laying the groundwork for future reductions in German interest rates.

With Bundesbank officials promising anew to wage war on price pressures, there's little reason to think the G-7 will agree to a joint interest rate strategy for the weeks and months ahead.

At two-decade lows, U.S. interest rates have little downside potential, sources say. And Japan may be faced with the need to keep interest rates steady as a support for the yen. Steady interest rates may also prove to be good ammunition against development of a speculative bubble in the Japanese economy as the government tries to boost economic growth via fiscal means. …