G7 RESPONSE:IN A SHOW of unity designed to calm markets, the Group of Seven nations have pledged to take "all necessary measures" to support financial stability and economic growth.
A statement issued by the G7 early yesterday morning signalled a willingness among the member nations – the US, Canada, Britain, Germany, France, Japan and Italy – to take steps ranging from liquidity injections to currency exchange market interventions, if such action is needed.
The group also highlighted the fact that euro zone leaders have made clear that the involvement of the private sector in Greece will not be applied to any other euro zone states.
The statement came after a flurry of activity over the weekend and followed a week in which sovereign debt market tensions spilled over into the wider financial system, sparking fears that a full-blown financial crisis could be taking hold.
The G7 finance ministers and central bank governors said “no change in fundamentals warranted” the recent financial tensions faced by Spain and Italy and welcomed the additional policy measures announced by those countries to strengthen fiscal discipline.
The group would remain in close contact during the coming weeks and would co-operate “as appropriate”, it said.
The statement, which was light on specific commitments, was designed to send a signal of unity to markets and show that the G7 recognised the seriousness of the situation and were prepared to act if necessary, said Ulster Bank chief economist Simon Barry.
“They were conveying a sense that they’re at the wheel and if things do get ugly, they will not be standing by the sidelines,” he said.
The Group of Seven reaffirmed its support for market-determined exchange rates and said “excess volatility and disorderly movements” in rates had adverse implications for economic and financial stability.
“We will consult closely in regard to actions in exchange markets and will co-operate as appropriate,” it said.
The range of exchange rate market interventions open to governments include buying up currencies that are falling, selling currencies that are rising strongly, and, in some cases, adjusting interest rates.
Both the Swiss and Japanese central banks have recently taken steps aimed at lessening some of the upward pressure on their respective currencies.
The G7 did not specify the exact tools available in its armoury. However Mr Barry said it was “laying down a marker” to remind markets that very sharp, sudden currency movements would not be tolerated.
The G20 group of major advanced and emerging economies echoed the G7 yesterday, issuing a statement in which its members affirmed their commitment to “take all necessary initiatives” in a co-ordinated way to support financial stability.
“Moreover,” the G20 statement added, “ we will continue to work intensively to achieve concrete results in support of strong, sustainable and balanced growth.”
