Schroeder Says U.S. Must Cut Deficits to End Dollar Decline
Nov. 20 (Bloomberg) -- German Chancellor Gerhard Schroeder called on U.S. Treasury Secretary John Snow to cut the American trade and current-account deficits to halt the decline in the dollar to ``worrying'' record levels against the euro. ``It's not right just to call on the Europeans to carry out structural reforms -- which we are doing -- but then not to emphasize one's own economic necessities as much as one should,'' Schroeder told reporters as he arrived for lunch for with finance ministers and central-bank governors from the Group of 20 nations in Berlin today.
Schroeder's comments point to increasing tension between Europe and the U.S. over the euro's ascent against the dollar to a record $1.3075 on Nov. 18. The gains threaten to undermine the recovery in the region sharing the currency, where growth slowed in the third quarter to the weakest pace in more than a year.
Snow, who is taking part in the Berlin meeting, suggested Nov. 17 that the increase in the U.S. current-account deficit is partly the result of the euro-region's slower growth rate, saying Europe should do more to attract investment.
The shortfall in the U.S. current account, a measure of trade, services, tourism and investments, widened to a record $166.2 billion in the second quarter. The budget deficit grew to a record $413 billion in the fiscal year ended Sept. 30.
U.S. Federal Reserve Chairman Alan Greenspan sent the dollar falling against both the euro and the Japanese yen yesterday by saying foreign investors may tire of financing the U.S. current- account deficit and diversify into other currencies or demand higher U.S. interest rates.
Japanese Concern
Schroeder's concern about the dollar's decline was echoed by Hiroshi Watanabe, Japan's vice finance minister for international affairs, who told reporters in Berlin the yen's gain against the dollar ``in the last week, in the last 10 days, was too rapid.''
The dollar fell yesterday to its lowest in more than four years against the yen, dropping as low as 102.70. ``Japan will closely monitor the market'' and ``take decisive action if necessary'' to halt the rise, Watanabe said.
Japan, which sold a record 32.9 trillion yen ($320 billion) in the fiscal year ended March 31, hasn't taken action to stem the yen's increase against the dollar since March because officials were confident the economy had recovered from a decade of stop- start growth. Since then, Japan has reported two consecutive quarters of slowing economic expansion.
``What is necessary is certainly better coordination with Asia, especially Japan and China,'' Schroeder said.
`Brake on Growth'
European chief Executives including Fiat SpA Chairman Luca Cordero di Montezemole and Siemens AG Chief Financial Officer Heinz-Joachim Neubuerger have said the euro's gain is hurting business. ``I know, coming from Ferrari, what a dollar this weak means,'' said Montezemolo, who also is chairman of Fiat's sports- car maker Ferrari SpA, at a conference in Milan Nov. 18.
``The weakening dollar puts a brake on growth opportunities,'' Neubuerger told reporters at a conference in Barcelona, Spain, yesterday.
European Central Bank President Jean-Claude Trichet, who is also attending the meeting alongside his U.S. and Japanese counterparts, on Nov. 8 called the euro's appreciation ``not welcome'' and ``brutal.'' Speaking at the same panel with Greenspan in Frankfurt yesterday, Trichet said he's sticking to that statement and had nothing to add.
Schroeder said today ``the European Central Bank and other central banks are thinking about their own possibilities of doing something'' about the decline in the dollar.
Avoiding `Imbalances'
The ECB has never sold euros to weaken the currency since its start in January 1999. The U.S. Federal Reserve last intervened in 2000, joining with the ECB and Bank of Japan to push down the dollar. The last time the Fed intervened to buy dollars was 1995.
German Finance Minister Hans Eichel, who is chairing today's talks, said all the leading industrialized and developing economies represented in Berlin must contribute to strengthening growth and preventing financial-market volatility.
``The imbalances that undoubtedly exist in the world economy mustn't lead to abrupt changes'' in foreign-exchange rates of oil prices, Eichel said. ``Everybody has to play their part,'' he said, including ``budget consolidation in the U.S.''
None of the G-20 nations has expressed an interest in buying dollars or selling other currencies to halt the dollar's decline, a German government official said today, speaking on condition of anonymity.
The G-20 nations account for 90 percent of the global economy, 80 percent of world trade and two thirds of its population.
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