A meeting in Washington of finance ministers from the Group of Seven industrialised nations did nothing to diminish the threat of a trade war between the United States and Europe over US quotas on steel imports.
European ministers made known to US Treasury Secretary Mr Paul O'Neill, apparently in no uncertain terms, their feeling of betrayal that an administration that preached free trade did not practice it. The G7 meeting was one of the main events at the spring gathering of the International Monetary Fund and the World Bank in Washington, held behind barricades manned by police in riot gear armed with long wooden truncheons and tear gas.
The ministers agreed on the joint freezing of assets held by 200 individuals or groups with alleged links to terrorism. German Finance Minister Mr Hans Eichel warned after the three-hour session in the heavily guarded US Treasury building on Saturday: "It would become a very severe burden for the world economic recovery if it came to what we all don't want to happen - a trade war between the US and Europe."
Austrian Finance Minister, Mr Karl-Heinz Grasser, predicted that European retaliation was inevitable, adding: "It's getting serious now". European member-states, the UK, Spain, France and Italy pressed the point that the steel tariffs could hurt the world economic recovery, according to Spanish Finance Minister, Mr Rodrigo Rato, current chairman of the euro group of finance ministers. "Conflicts between countries, not least between the US and the EU, are important not just to us but to the world economy," he said.
Under pressure from the US steel industry and unions, the Bush administration has put severe quotas on the import of cheap steel, and the EU is retaliating with similar measures on US imports to Europe. The finance ministers agreed that global economic recovery was under way, echoing the upbeat assessment of the International Monetary Fund of an increase in world growth this year from 2.5 to 2.8 per cent.
"Economic recovery from the slowdown is under way, supported by appropriate and proactive macroeconomic policies that were in part a response to the tragic events of September 11th, but downside risks remain, including those arising from oil markets," the ministers said in a statement.
In a partial victory for the US case that a market-based approach be taken to financial crises in developing countries, the G7 ministers agreed that in future, countries that borrowed from international financial institutions should agree to debt restructuring provisions in the event of problems. Mr O'Neill had earlier backed away from his proposal for an international bankruptcy court.
Mr O'Neill said the G7 wanted to "move from reacting to crises with repair efforts" to encourage nations to make their debt "investment grade", i.e. more attractive to investors. An action plan by the ministers said the G7 was prepared to limit the future size of international bailouts, but it contained the escape clause "except when circumstances justify an exception".
