Chronology of G-7 Meetings Since the 9-11 Attacks

February 12, 2009

G-7 finance ministers and central bankers fittingly meet in Rome for two days starting on Friday the 13th under the direst economic conditions since the mid-1980’s when the current arrangement of three annual meetings to coordinate policy and share information and thinking.  This is the first meeting of 2009 and the first gathering to include Tim Geithner as Treasury Secretary, although he is already well-known by the other players.  Since the group met four months ago, the yen has appreciated 11% against the dollar and 14% on a trade weighted basis.  All seven economies — the United States, Japan, Germany, France, Britain, Italy, and Canada — experienced massive losses in activity last quarter, and developing economies and emerging economies have been infected much more than imagined and are experiencing percentage point deteriorations of growth that in many cases surpass those of the advanced economies.  Compared to levels right before the October meeting, the DJIA has lost 8.5%, and the Japanese Nikkei and German Dax have fallen by 7% and 3%.  The British Ftse is stronger now than then, a market recognition that currency depreciation in times like these can be beneficial. 

The October meeting occurred two days after a coordinated round of central bank rate reductions.  Since that meeting, the Fed funds target has declined by another 135.5 basis points.  The British Bank Rate is 350 basis points lower.  The ECB has cut its rates by 175 basis points, and the Bank of Canada has eased by 150 basis points.  The Bank of Japan has cut its overnight target just 40 basis points, however.  The 10-year Treasury yield is 114 basis points lower now than then, although five-eighths of a percentage point higher than at end-2008.  Oil prices were already 45.7% below their July peak when the G-7 met in October, yet they tumbled by an additional 56.6% over the following four months.

One can’t avoid a sense of deja vu reading back over the press coverage of the October meeting.  The complaint then was that the statement was big on identifying broad needs but missing the details of exactly how governments and central banks expected to secure those goals.  The tone of the coverage was the same as found after Geithner presented his financial market rescue plan earlier this week.  It’s an understandable criticism but not necessarily a realistic one.  Opinions range widely over what remedies might succeed, and the strategy in practice will probably be guided by trial and error.  It’s not accidental that governments of all different ideological persuasions seem clueless.  Meanwhile, massive layoffs set the stage for further waves of economic contraction, so economic machinery is breaking down faster than officials can patch malfunctioning parts.  The deeper into the downturn one travels, the more plausible it seems that even the most bearish of forecasters, like NYU’s Nouriel Roubini, may still prove to be wildly too optimistic about how much more time will lapse before the onset of a sustainable recovery and how much deeper share prices will drop in the meantime.  From a peak over 19 years ago, Japan’s Nikkei is presently down 80%.  The DOW is merely 45% below its peak in October 2007.

Below is a chronology of what G-7 officials said about currency coordination and some other issues after each of their last 25 meetings.

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10/10/08
Washington
Officials issued a statement of atypical length and specificity that abandoned the usual discussion of economic conditions and prospects and excluded any paragraph on currency market policy.  The communique promised “urgent and exceptional action” to support bank recapitalization and market liquidity and to promote lending, depositor insurance, and the health of secondary markets for mortgages and securitized assets. In this more coordinated process, officials pledged not to take steps that would harm other economies and endorsed a critical continuing role for the IMF. Oil $79.94  EUR 1.341 YEN 100.3
     
04//11/08 Washington Replaced two sentences of FX section stating a desire for parities to reflect fundamentals and not show excessive volatility with the following more sharply worded protest:  “We reaffirm our shared interest in a strong and stable international financial system.  Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability.”  Wording on the yuan was same as in February.  No explicit mention of the euro, dollar, or yen.   OIL $110.14 EUR 1.583 YEN  100.8
     
02/09/08 Tokyo Meeting focused upon global slowdown, not forex issues, and policy responses to such.  Effort made to present solidarity but did not unveil immediate actions. Comment on yuan softened by substituting word “encourage” for phrase “stress its need to allow.”  No other changes made to forex policy paragraph.  ECB’s Trichet quelled talk of an ECB near-term rate cut.  Bank of Canada Governor Carney: more easing is likely. OIL $91.77 EUR 1.451 YEN 107.3
     
10/19/07 Washington No mention of dollar, yen, or euro.  Same first 3 sentences in forex policy paragraph but modified language on yuan to read “We welcome China’s decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we stress its need to allow an accelerated appreciation of its effective exchange rate.” OIL $88.60 EUR 1.430 YEN 114.5
     
04/13/07 Washington Identical exchange rate paragraph used as in the Essen statement, with no explicit mention of yen, yuan, dollar, or euro. Expressed a little more optimism about G7 growth, but country-specific comments were similar to the February communique. Deleted praise for Chinese reforms. OIL $63.63  EUR 1.353  YEN 119.1
     
02/10/07 Essen “We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur.” No explicit reference to the yen. Upbeat comments about growth outlook. OIL $59.89 EUR 1.300 YEN 121.8
     
09/16/06 Singapore Same currency market policy paragraph as used in April 2006. Chinese officials offered no more specific promises on yuan flexibility timetable. In later remarks, European officials said the yen should appreciate. More moderate U.S. growth was predicted, but the global outlook was called positive. OIL $63.40 EUR 1.265 YEN 117.5
     
04/21/06 Washington Same first 3 sentences in paragraph dealing with FX. Then, “Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur.”  Made recommendations for a shared attack on global imbalances.  Called expansion outlook favorable and inflation contained. OIL $75.17 EUR 1.234 YEN 116.6
     
12/03/05 London Kept standard 3-sentence expression of FX policy. Changed yuan comment to “we expect that further flexible implementation of China’s currency system would improve the functioning and stability of the global economy and the international monetary system.” Upgraded growth outlook to “solid” but broadened risk from oil to “possibility of increasing inflationary pressures.” OIL $59.32 EUR 1.172 YEN 120.5
     
     
09/23/05 Washington First 3 sentences of FX paragraph are the same.  Welcomed Beijing decision to pursue greater flexibility in FX regime and “expects the development of this more market-oriented system…” Global economy continues to expand, but future risks have increased and become more numerous. Such include higher energy prices, growing global imbalances, and protectionism. OIL $64.19 EUR 1.292 YEN 107.8
     
04/16/05 Washington Fifth consecutive G7 statement to invoke same 4-sentence FX paragraph adopted initially in February 2004. Trichet said the call for FX flexibility meant for all “emerging Asian nations with restrictive FX policies,” not just China. The Chinese did not attend. OIL $50.49 EURO 1.292 YEN 107.8
     
02/05/05 London No change in FX paragraph. The head of the People’s Bank of China denied any timetable for a yuan revaluation. G7 claimed global growth is more moderate than in prior October but is “expected to remain robust for 2005. “Inflation “remains subdued.” U.S. committed to fiscal consolidation, Europe and Japan to further structural reform. OIL $46.48 EUR 1.287 YEN 104.1
     
10/01/04 Washington Same FX paragraph for a third straight time.  “Oil prices remain high and are a risk. So first we call on oil producers to provide adequate supplies to ensure that prices moderate. Second, it is important for consumers and producers that oil markets function efficiently, and we encourage the IEA to enhance its work on oil data transparency.” OIL $50.12 EUR 1.240 YEN 110.5
     
04/24/04 Washington Identical 4-sentence paragraph on FX policy to that in the Boca Raton G7 statement. FX should reflect fundamentals. Excessive FX volatility and disorder are undesirable. G7 to cooperate on FX. Urged flexible FX regimes where lacking. OIL $36.46 EUR 1.830 YEN 109.1
     
02/07/04  Boca Raton No deletions but two inserts made to clarify what some felt was a market “misinterpreta-tion” of Dubai’s message on FX policy. Added the following after Dubai’s first sentence: “excess volatility and disorderly movements in exchange rates are undesirable for economic growth.” Final sentence now reads “…areas that lack such flexibility in FX rates to promote…” OIL $32.48 EUR 1.270 YEN 105.5
     
09/20/03 Dubai “Exchange rates should reflect fundamentals. We continue to monitor exchange rates closely and cooperate as appropriate in this context. We emphasize that more flexibility in exchange rates is desirable for major countries or economic areas to promote smooth and widespread adjustments in the international financial system, based on market mechanisms.” OIL $27.03 EUR 1.137 YEN 114.0
     
04/12/03 Washington “Growth in most of our economies has been subdued, though uncertainties have diminished…We will respond as needed to developments in the economic environment. We will continue to monitor exchange markets closely and cooperate as appropriate.” No specific currency misalignments or policies were mentioned. OIL $28.00 EUR 1.075 YEN 120.5
     
02/22/03  Paris While affirming confidence in the underlying strength of their economies, officials, “recognize the imperative for higher growth rates and resolve to take steps to achieve this result.” ECB president Duisenberg hinted a near-term rate cut may be in the works, but the statement’s policy commitments were broad and unlikely to impress traders. Language used on Forex was standard stuff. OIL $35.58 EUR 1.077 YEN 118.7
     
09/27/02 Washington Aside from a pledge “to monitor exchange markets closely and cooperate as appropriate,” statement did not comment on recent countries. “Economic growth is continuing, though at a more moderate pace than earlier this year. Risks remain.” OIL $30.45 EUR 0.981 YEN 122.6
     
04/20/02 Washington Fifth straight statement to avoid discussion of specific currencies and to merely include standard language about monitoring markets and cooperating as appropreate… “Each of us has an aongoing responsibility to implement sound macroeconomic policies and structural reforms to sustain recovery.” OIL $26.40 EUR 0.892 YEN 130.3
     
02/09/02  Ottawa Standard clause about monitoring forex and cooperating as appropriate but no further remarks about any particular currency. “Prospects have generally strengthened for resumed expansion… We remain vigilant and will each continue to take appropriate steps to promote a sustained recovery.” Discussed Argentinal and Enron. U.S. Treasury Secretary O’neill said the G7 was satisfied with Japan’s progress. OIL $35.58 EUR 0.872 YEN 134.7
     
10/06/01 Washington Meeting less than one month after the 9/11 attacks, no currencies were cited. “We will continue to monitor exchange markets closely and cooperate as appropriate.” O’neill “understands” why BOJ intervened heavily in September. G7 determined to “bring forward measures to increase economic growth and preserve the health of our financial markets.” OIL $ 29.60 EUR 0.918 YEN 120.5

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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