/www.bloomberg.com/ By Katrin Bennhold
Paris, Feb. 18 (Bloomberg) -- Fund manager Marc Renaud for years paid heed to the Group of Seven industrialized nations' pronouncements. This Friday, when G-7 finance ministers meet in Paris for two days of talks, he'll be skiing in the French Alps.
``I used to think their statements might change the world, but not anymore,'' says Renaud, who helps manage 1 billion euros ($1.1 billion) in stocks for CCR Actions, a unit of Germany's Commerzbank AG. ``Instead of providing leadership, these guys are just fighting with each other.''
The G-7 member countries today are divided on everything from interest rates and fiscal policy to waging war on Iraq. So, instead of seeking to coordinate government efforts to spur economic recovery, the ministers will probably stick to less controversial subjects, French officials said.
``This meeting will be held in particularly delicate economic circumstances,'' said Francis Mer, France's finance minister and host of the meeting. ``The power of the G-7 lies in passing a message to the world so that the world economy works a little less badly.''
The G-7 countries -- the U.S., Japan, Germany, France, the U.K., Italy, Canada -- account for two-thirds of the world economy. Now, amid political differences, the largest economies are taking divergent paths as they try to recover from recession.
The rift over whether to take military action to disarm Iraq and oust President Saddam Hussein intensified over the weekend as antiwar marches drew millions, in the U.S. as well as Europe. British Prime Minister Tony Blair has backed the U.S. government in pushing for swift action against Iraq, a policy that French and German leaders oppose.
Struggling Economies
``The risk is that the Iraq virus will also infect this meeting and block action,'' said Adolf Rosenstock, economist at Nomura International Plc. ``It would be bad news if the transatlantic hurricane devastated economic relations as well.''
The economic differences already exist. President George W. Bush plans to cut taxes, Germany and Britain are raising them. And the European Central Bank has reduced borrowing costs at less than half the pace of the U.S. Federal Reserve.
The G-7's three largest economies are struggling: Germany's gross domestic product gained 0.2 percent last year, its smallest increase since 1993. The U.S. economy, the world's largest, grew at a 0.7 percent annual pace in the fourth quarter, down from 4 percent in the July-September period. Japan's economy, aided by a surge in fourth-quarter exports, grew only 0.3 percent in 2002.
``Nobody can be sanguine about the state of the world economy right now,'' said John Manley, Canada's finance minister.
Different Approaches
With economies sputtering, the reluctance of finance ministers to develop a strategy for growth has disappointed executives as well as investors.
``We need something like a Marshall Plan,'' said Gilles Granier, chief executive of the French subsidiary of Intel Corp., the world's biggest computer chipmaker. ``The G-7 needs to act.''
What keeps finance ministers from delivering a coherent message is the fact their governments are taking different approaches in attempting to stimulate economic growth.
Bush wants to lower taxes by $690 billion, though that may raise the U.S. budget deficit to a record $307 billion next year. The Japanese government will cut taxes by 1.8 trillion yen ($14.9 billion) in the fiscal year starting April 1.
By contrast, European Union budget rules are forcing some countries to scale back tax cuts and others to raise taxes. Planned tax increases in Germany may cost companies as much as 17 billion euros a year. In France, President Jacques Chirac is unlikely to meet election pledges to trim income tax by a third, analysts say.
Exchange Rates
While the Federal Reserve has cut its benchmark overnight bank rate 12 times since January 2001 to a 41-year low of 1.25 percent, the ECB has cut only five times in the same period, to 2.75 percent. The Bank of England lowered its benchmark rate to 3.75 percent last week, the lowest since 1955.
The industrialized world's economies are stumbling at a time of surging oil prices. The price of benchmark Brent crude oil has risen 55 percent since January 2002 to $32.68 a barrel, fueled by U.S. preparations for a possible attack on Iraq, which pumps 3 percent of the world's oil output.
In an area of concern to finance ministers -- exchange rates -- governments often oppose one another to pursue their perceived national interests.
European companies, for instance lament the euro's 23 percent increase against the dollar over the last 12 months.
``It would be nice if they did something about the euro,'' said Reinhart Siewert, chief executive of Koenig & Bauer AG, a German maker of printing machines that gets 80 percent of its sales abroad.
Consensus Lacking
The Japanese economy also would benefit from a higher dollar, which would boost exports to the U.S. The dollar's decline, on the other hand, helps U.S. exporters such as 3M Co. and United Technologies Corp. U.S. factory orders rebounded in December and unemployment fell in January.
When there's consensus, G-7 members showed they can work together. In 1985, after the dollar had risen to levels that hurt U.S. exports, G-7 members threw their weight behind a weaker U.S. currency. Within months of the so-called Plaza Accord, the dollar had fallen 20 percent against the yen and mark.
Just how much influence finance ministers can exert in currency markets today is debatable. When G-7 ministers tried to raise the euro's value in September 2000, the gain was short- lived. Europe's single currency gained 4 percent, then fell a month later to a low of less than 83 cents. The euro fell to $1.0734 yesterday from $1.0792,
``For quite some time, the idea of a currency accord hasn't found consensus among the G-7,'' said Randal Quarles, Assistant Treasury Secretary for International Affairs.
Common Ground?
Says Eisuke Sakakibara, a former Japanese deputy finance minister known as 'Mr. Yen' for his clout in the currency market: ``The likelihood that G-7 members discuss and decide on various matters of the global economy will probably continue to diminish.''
France, the current G-7 chair, will host two of the four meetings of finance ministers this year. Finance Minister Mer, who unveiled a bill on corporate governance and financial market stability this month, wants G-7 members to agree on a global blueprint for regulating credit-rating companies.
``I believe we will find common ground on those questions, beyond the other differences that exist today,'' said Francois Perol, Mer's deputy chief of staff.
As to G-7 policy initiatives, Canada's Manley noted that he and Mer went to their first meetings as finance ministers last June. U.S. Treasury Secretary John Snow has only been in the job since Feb. 7, he said.
``There are a lot of new people around the table,'' said Manley. ``We'll see what the dynamic is.''
Many executives already have learned not to expect too much from the meetings.
``The G-7 allows the world leaders to talk behind closed doors for two days,'' said Gerard Hauser, chief executive officer of France's Nexans SA, the world's largest cable maker, which shut factories and shed jobs last year. ``Often the outcome is disappointing.''