- The Washington Times - Monday, June 2, 2003

Japanese and European heads of state yesterday urged President Bush to bolster the sagging dollar, warning that the American currency’s fall is threatening economic growth in their countries.

At a Group of Eight morning session in Evian, France, the leaders said Mr. Bush reassured them that he favors a strong dollar, but indicated the United States would continue its laissez-faire policy of letting the financial markets determine its value.

The dollar has shed 25 percent against the European currency, 15 percent against the Canadian dollar and 10 percent against the Japanese yen since peaking early last year. The decline has sapped the exports and economic growth of these three leading trade partners, which buy more than half of U.S. exports.

“Bush affirmed very clearly that he wants a strong dollar,” Italian Prime Minister Silvio Berlusconi said after the meeting. “He was very clear about the fact that the U.S. economy can expand only if the economies of Japan, Europe and Russia are growing.”

Mr. Bush is under strong pressure from the other leaders as the dollar’s year-long decline has taken a significant toll on their economies. Canada, Germany and Japan, which depend heavily on exports to the United States for economic growth, all have been brought to the brink of recession by slumping exports.

German Chancellor Gerhard Schroeder told a Moscow newspaper that “if the euro’s rapid gains continue, it will threaten the economy of Germany,” which is Europe’s largest.

While Mr. Bush told the other leaders he would “stick to his policy of the strong dollar,” said German Deputy Economics Minister Alfred Tacke, he also made it clear the United States would not intervene to shore up its currency.

European Commission President Romano Prodi said that European leaders are worried the dollar’s sharp drop could lead to competitive devaluations by European and Asian countries, a development that could wreak havoc with the global economy and financial system.

Mr. Bush’s “assurances are extremely important for avoiding that we start a monetary battle,” Mr. Prodi said. But he and other European leaders said they agree with Mr. Bush that it is not appropriate to try to stop the dollar’s fall by intervening in the markets. They prefer reliance on other economic policies, such as interest rates.

One development that is likely to boost the dollar this week is an expected half-point interest-rate cut by the European Central Bank. That will weaken the euro by reducing the allure of higher-rate European bonds that have been attracting investors on both sides of the Atlantic.

The dollar rallied modestly yesterday on Mr. Bush’s comments and those of other G-8 leaders, advancing to $1.176 per euro from $1.178 in New York trading. It also rose against seven other major currencies, sparked by signs of a revival in U.S. manufacturing. But it fell to 118.59 yen from 119.30 on Friday.

Mr. Bush triggered a rally in overseas trading on Saturday when he told Russia’s RTR TV, “The market at this point in time has devalued the dollar, which is contrary to our policy. … The policy of my administration is for there to be a strong U.S. dollar.”

Japanese Prime Minister Junichiro Koizumi appeared to make an all-out effort at the summit to talk down the yen. The Bank of Japan spent a record $33.4 billion last month trying to cushion the dollar’s fall against it.

“Mr. Koizumi said that he didn’t understand why the yen has appreciated,” the prime minister’s spokesman, Hatsuhisa Takashima, said yesterday.

Mr. Koizumi earlier made a plea for a weaker currency in an interview with foreign journalists. “Credit-rating agencies have downgraded Japanese government bonds to below those of Botswana. Yet why doesn’t the Japanese yen depreciate?” he said.

The dollar’s fall was a main topic of the summit meeting on the global economy. Catherine Colonna, spokeswoman for French President Jacques Chirac, said exchange rates are “very important” for global growth and that the G-8 nations will “closely monitor” them.

Mr. Bush’s pledge to support a strong dollar does not come without economic and political costs. American business and labor groups have been pressing for a softer dollar to provide relief to beleaguered U.S. manufacturers, who have lost export markets and shed more than 2 million jobs in the last two years.

“The recent drop in the dollar against the euro and a few other currencies has not gone far enough to offset the harm done to the U.S. economy by the overvalued dollar for the last several years,” said Robert A. Blecker, an American University economics professor with the Economic Policy Institute, a labor-funded think tank.

He noted that despite its substantial decline in the last year, the dollar has reversed only one-third of its increase since 1995 relative to the European and other major currencies, and has not fallen relative to the currencies of developing nations that account for more than half the U.S. trade deficit.

Mr. Blecker contended that the G-8 leaders, rather than promoting a stronger dollar, should have endorsed an orderly decline of the American currency as the best remedy for the U.S. and global economies.

• This article is based in part on wire-service reports.

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