- The Washington Times - Sunday, February 23, 2003

PARIS The world's top finance ministers yesterday said the threat of war in Iraq is hurting global economic growth and stock markets, and they vowed to redouble their efforts to revive the world economy.
The Group of Seven finance ministers, representing the United States, Japan, Germany, France, Great Britain, Canada and Italy, issued statements at the end of two days of meetings in which they unofficially forecast that a war would cut world growth in half this year while raising the possibility of renewed recession in Europe and elsewhere.
"There was a recognition that the geopolitical situation is an important backdrop that is influencing markets and putting a restraint on capital expenditures" while driving up oil prices, said U.S. Treasury Secretary John W. Snow.
"There was a consensus that early resolution of geopolitical issues would be beneficial, and once resolved, there would be a fairly quick return to normalcy in equity markets, capital spending and consumer behavior," he said.
The conclusions of the conference mirror positions Federal Reserve Chairman Alan Greenspan has taken on the looming war against Iraq and its influence on the economy. Mr. Greenspan participated in the conference and, though he did not speak publicly, the other ministers at the meetings quoted him frequently.
Ministers said Mr. Greenspan repeated his belief that the economy and markets would rebound, and oil prices would recede, once the Iraq situation is resolved.
Mr. Greenspan gave the group his detailed analysis of the oil markets and apparently counseled against tapping into the nations' strategic petroleum reserves to try to bring down prices that are nearing record levels in the markets.
Nevertheless, French Finance Minister Francis Mer, who hosted the meetings, said governments are prepared to take emergency measures, including coordinating interest rates cuts and dipping into oil reserves, if a war breaks out and sends prices to dangerously high levels.
"What is important is that we be ready to act, should we need to," Mr. Mer said, but "we didn't feel the need to adopt game plans [in advance] for all the scenarios you might imagine."
Mr. Greenspan's looming presence behind the scenes apparently put Mr. Snow on the spot, as the Treasury chief used his first appearance at the G-7 meeting to make the case that President Bush's $690 billion tax-cut package is needed to promote growth not only in the United States but in the world economy.
The Federal Reserve chairman earlier this month argued against enacting the stimulus program, although he endorsed in principle the centerpiece of Mr. Bush's package to exempt stock dividends from taxes. Mr. Greenspan said the economy probably does not need tax cuts, and they should be put on hold to avoid creating the record budget deficits projected under Mr. Bush's plan.
Mr. Mer highlighted the division between the Treasury secretary and the Fed chairman, citing and endorsing Mr. Greenspan's views and deploring the return of large budget deficits in the United States.
"Sustainable growth requires not writing blank checks against the future in the form of national debt," Mr. Mer said. Other European officials also vociferously denounced the U.S. budget deficits throughout the day, not mentioning that European budget deficits by and large have been much bigger in recent years.
Mr. Mer said the "cloud of uncertainty" cast over the world economy by the Iraq situation prompted the finance ministers to rededicate themselves to the principle of growth and renew long-standing efforts to liberalize heavily regulated markets, particularly in Europe and Japan, where growth has been lagging chronically behind U.S. growth rates.
"We have to learn in Europe to be better at creating the conditions for growth," Mr. Mer said, noting that European growth has been "merely copying the United States" and has not shown much staying power on its own.
France and Germany's economies grew at meager 0.2 percent rates last year while growth in the United States averaged about 3 percent. Growth dropped sharply in the United States in the final quarter of the year, however, to 0.7 percent and has shown little sign of picking up since then.
The precipitous slowdown seen in the U.S. and European economies at the end of last year, combined with the anemic 0.3 percent growth rate posted by Japan, has prompted economists to downgrade their forecasts for growth this year.
The finance ministers yesterday, in effect, attributed the flattening out of growth to worries about war, which have been causing businesses and consumers to put off spending decisions.
Worries that war could push the United States back into recession also have been plaguing Wall Street for months, with the market often rising and falling on each tidbit of news that reflects on the likelihood of military action against Iraq.
If a war occurs, world growth would fall to 1.5 percent this year from previous estimates of 3 percent, according to unofficial estimates by the International Monetary Fund that officials cited at meetings yesterday. Without a war, they said the IMF expects growth to accelerate to about 3.5 percent.

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