European finance ministers used the G7 finance ministers meeting in Japan over the weekend to launch a strong defence of the EU economies and the euro and said Europe's economic growth is likely to accelerate, without triggering inflation, even with a pickup in oil prices. The European finance ministers told the meeting that economic growth is robust, unemployment is dropping, and inflation, is not a problem," Italian Treasury Minister Vincenzo Visco said.
The French finance minister Laurent Fabius said that rising oil prices was a worry but warned against any increase in European Central Bank interest rates. His German counterpart Hans Eichel said Europe could take over from the US as the world's engine for economic growth" as soon as 2001. The recovery by the euro to $0.948 since it fell to a record low of $0.87 in early May has eased some of the ECB's concerns about inflation and was seen as the main reason why the central bank decided to leave interest rates unchanged last week. "There's no reason for a rate rise," said Mr Fabius who warned that higher borrowing costs could dampen economic growth within the euro zone.
"We can say that the euro has hit bottom," Mr Eichel said. Mr Fabius agreed. "You have ups and downs. Now it's once more up, my guess is it will be more and more understood in the market that the euro will become stronger." For his part, US Treasury Secretary Laurence Summers repeated his desire to see Japan play its part to boost the world economy by maintaining a loose monetary policy while his Japanese counterpart kept to his mantra - that interest rates are out of his hands.
That US pressure on Japan to maintain its generous monetary and fiscal policies was unlikely to upset the markets when they open today because Mr Summers and the other finance ministers avoided direct comments on the touchy issue of a Japanese rate rise, analysts said.
Even though central bankers were not at Saturday's meeting and currencies were never on the agenda, markets were on tenterhooks for any clues as to pressure on the Bank of Japan and its next move - expected to be a 0.25 percent increase on July 17th.
The G7 twice in the last year has issued statements of concern over the strong yen, which Japan fears could fan deflationary pressures and hurt the value of Japanese overseas earnings. This time it did not merit a mention.
Last week, the yen shed about three per cent against the dollar. This followed two-month highs of 103.90 on June 23rd. The dollar extended gains against the yen at the end of last week to fresh one-month highs just shy of 108 yen. It stood at 107.90 yen, up more than a third of a per cent on Friday.
Mr Summers, who met Japan's Kiichi Miyazawa on the sidelines of the meeting, said both agreed Japan had plenty to do to ensure a recovery in its battered economy takes root.
