Bari Statement of G7 Finance Ministers and Central Bank Governors

May 14, 2017

Group of Seven finance ministers and central bank chiefs released a five-page statement following their two days of talks in Bari, Italy. The meeting was a preamble to the summit of G7 leaders later this month in Sicily. It will be the first one attended by President Trump, and the broad waves he has been making since getting election was the often unspoken main matter at Bari. U.S. Treasury Secretary Mnuchin showed up at the conference late.

The financial authorities at Bari concluded that although picking up momentum, growth remains only moderate, below its potential rate in many places and with risks skewed to the downside. Longer-term potential growth remains subdued. Inflation was hardly discussed. Climate change was not addressed in the statement, but the countering of terrorist financing and “the rapidly evolving nature of cyber risks” got considerable attention.

The final sentence of the first paragraph repeated verbatim a sentence of the Group of Twenty Communique from Baden Baden released March 18 that reads, “we are working to strengthen the contribution of trade to our economies.” The inclusion of this pledge is a concession to Trump, who has made “fair trade” and the elimination of large U.S. bilateral trade deficits the cornerstone of his economic policy agenda.

On the other hand, other language in the Bari statement borrow extensively from long-held G7 views on policy do’s and don’ts:

  • Monetary policy should continue to support economic activity and ensure price stability, consistently with central banks’ mandate.
  • We remain committed to advancing structural reforms to boost, productivity and potential output. We are determined to enhance the implementation of structural reforms, and we will ensure these are appropriately coordinated with macroeconomic policies.
  • We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments.
  • We reaffirm our existing G7 exchange rate commitments to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We will not target exchange rates for competitive purposes. We underscore the importance of all countries refraining from competitive devaluation. We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability.
  • We will carefully calibrate and clearly communicate our macroeconomic and structural policy actions to support domestic growth, reduce policy uncertainty, minimize negative spillovers and promote transparency.

A somewhat new policy objective was jumped to the forefront: the promotion of inclusive growth in addition to growth that is strong, sustainable and balanced. The word inclusive appears no fewer than eight times and may be an implicit swipe at Trump whose tax plan would benefit the wealthiest Americans much more than other families and therefore risks even more polarized incomes and wealth.

Another area of potential disagreement with the U.S. administration is the latter’s push for a bilateral push for trade negotiations rather than the multilateral approach favored for decades by the G7.

One quote from the Bari sidelines quoted on many newswires comes from the German Finance Minister Schaeuble, who underscored the “need for a strong U.S. to lead global economic and global politics in a sustainable way.” As a candidate, Trump assured that if elected, he’d get U.S. growth to trend at 5%. This has been scaled back 40% to 3%, but even that seems very ambitious. It hasn’t occurred in a sustainable way this century. U.S. productivity growth has been weak historically. Trump’s immigration policies will crimp employment growth and hammer tourism, and the intrinsic contempt for science threatens to put the U.S. behind the curve in developing 21st century industries.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: ,


Comments are closed.