G-7 to Confer on Greece as Stocks Fall on Contagion

www.bloomberg.com | By Mayumi Otsuma and Kyoko Shimodoi
 

May 7 (Bloomberg) -- The Group of Seven plans to hold a conference call today to discuss the Greek debt crisis, according to Japanese Finance Minister Naoto Kan, after a global stock rout sparked by concern debt woes are spreading. 

European members “will probably explain” steps taken with the International Monetary Fund to assist Greece, Kan said at a press conference in Tokyo today. “I don’t think we will be asked to take specific action, such as currency intervention.” 

The comments sent the euro rising against the dollar after it hit a 14-month low yesterday, and caused stocks in Asia to pare their losses. The call indicates that finance chiefs from the world’s most developed nations may see escalating risks to the global economic recovery little more than a year after the global credit crisis faded.

“They’ve got to do something -- everything they’ve tried has failed to convince markets that they have the situation under control,” said Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong who previously worked at the U.S. Federal Reserve and U.K. Treasury. “Getting some other parties in to beef up the European Union’s response is the logical next step.” 

Jackson added that “the risk is that if not a lot of substance comes out of it, it could do more harm than good.” 

Public Message 

The G-7 finance ministers aren’t planning to issue a joint statement, but it’s possible each member will publicly deliver a common message, according to a Japanese government official who spoke on condition of anonymity because the plans for the call are private. The G-7 stopped issuing statements after regular meetings since IT last year made the Group of 20 the main arena for setting global economic policy. 

The euro advanced 0.6 percent to $1.2697 as of 12:53 p.m. in Tokyo after reaching as low as $1.2529 yesterday. The G-7 hasn’t intervened in the currency market since a coordinated effort in 2000 to buy the euro, which was at the time undermined by lack of confidence in the region’s economic-growth prospects. 

Japan’s Nikkei 225 Stock Average was down 2.8 percent as of 1 p.m. in Tokyo after tumbling as much as 4.1 percent earlier. Asian traders came in today after the U.S. Dow Jones Industrial Average at one point overnight slid the most since the 1987 crash, before closing down 3.2 percent. 

Bond Retreat 

The Wall Street sell-off, triggered by Europe’s debt crisis, was exacerbated by waves of computerized trading. Shares were hit by signs the Greek situation is spreading. The extra yield investors demand to hold Spanish and Portuguese debt yesterday rose to the highest level since the euro’s 1999 inception.

In an effort to maintain orderly markets, the Bank of Japan said today it will pump 2 trillion yen ($22 billion) into the financial system after the Greek debt crisis caused instability in financial markets. The emergency measure was the first same- day repurchase operation since December. 

Japan’s currency yesterday advanced to the highest level against the euro since December 2001. Today, the yen weakened 3 percent to 117.86 per euro. It also fell 2.2 percent to 92.66 per dollar. 

“Currencies have been moving in a volatile manner,” said Kan, who is also deputy prime minister and took office in January saying he wanted to see a weaker yen. “I expect it will come down,” he also said, referring to the yen’s value against the dollar. 

Trichet’s Rebuff 

Today’s G-7 call comes a day after European Central Bank President Jean-Claude Trichet resisted taking any new steps to stem contagion. The euro-region’s central bank kept its benchmark interest rate at 1 percent. 

Trichet said yesterday that the ECB’s 22-member Governing Council didn’t discuss buying government debt and that Spain and Portugal don’t face the same challenges as Greece, which was granted an international bailout last week. Euro-area governments should instead intensify efforts to cut budget deficits, he said at a press conference in Lisbon. 

Greece was given a 110 billion euro ($140 billion) rescue package by the European Union and International Monetary Fund on condition it enact steeper reductions to its budget deficit. Greece’s parliament yesterday approved the austerity measures. Germany, which will provide the biggest share of Europe’s bilateral loans to Greece, will vote on its contribution today. 

“The key here is whether they’ll be able to come up with a solution that the market has yet to expect,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo, referring to the G-7 conference call. 

The group’s members are the U.S., U.K., Japan, France, Germany, Canada and Italy. The broader G-20 includes countries from Australia to China, Russia, India and Brazil.