High oil prices, heavy stutters in the US economy and global financial market instability are on the agenda of a G7 meeting in Tokyo this weekend. Meanwhile, the European Central Bank has made comments suggesting possible interest rate cuts in the euro zone.
Finance ministers and the heads of central banks from the Group of Seven (G7) – Canada, France, Germany, Italy, Japan, the UK and the US – will meet on Saturday (9 February) in Tokyo to discuss the global financial system as global markets become increasingly wobbly.
Better risk management, rapid disclosure of losses by banks and transparency in sovereign wealth funds are among the topics for discussion.
US in tailspin?
In addition to growing signs of a US recession, the dollar continues to weaken, with investors selling off more and more greenbacks as worries grow about the value of their US dollar-based assets.
“In the future, I would predict that the US dollar will decline,” says Warren Buffett, financial guru and second richest man in the world. Buffett, like many economists, is concerned about the size of US trade deficit, which was nearly $800 billion in 2006.
Euro interest rates
The ECB is under mounting pressure to slash rates in order to shield the EU from the global slowdown and troubles in the US economy.
Comments made by Trichet following a 6 January ECB meeting are fuelling speculation the bank may be reconsidering its strategy, with some observers forecasting a rate cut in April.
“The slowdown in the economies of some of the euro area’s major trading partners is likely to have an impact” on growth in the coming year, according to Trichet, who was quoted in the Wall Street Journal.
Société Générale ‘inexcusable’
EU Internal Market Commissioner Charlie McCreevy predicts that the EU will remain “quite resilient” to the situation in financial markets, commenting in a 6 February speech in London.
But McCreevy lamented the “lax and inadequate” risk management standards and disclosure policies of “thousands” of financial firms. He singled out France’s Société Générale, which McCreevy accused of “inexcusable” behaviour and “abject carelessness” for failing to uncover the activities of rogue trader Jerome Kerviel earlier, according to press reports.