Surprise intervention likely to top G7 agenda today

When the president of the European Central Bank (ECB), Mr Wim Duisenberg, meets the press in Prague this afternoon, he will face a barrage of questions about yesterday's surprise intervention to boost the euro in the foreign exchange markets. The euro's weakness is expected to be near the top of the agenda at today's meeting of finance ministers from the Group of Seven (G7) leading industrialised countries.

The markets will be watching the G7 to see what the ministers say about yesterday's dramatic intervention. Next week will provide a further test of whether the decision was the right one, when the markets reopen.

After yesterday's move by the ECB, the Bank of Japan and the US Treasury, which was supported by Britain and Canada, the ministers may be able to turn their attention to the other pressing problem faced by the world's economy - the price of oil. The G7 governments are worried that the oil price rise could damage economic growth and some experts believe that the high cost of fuel could cut growth for this year by half a percentage point.

The International Monetary Fund (IMF) expects the world economy to grow by 4.7 per cent this year and by 4.2 per cent in 2001. The euro-zone economy is expected to grow 3.5 per cent this year and 3.4 per cent next year.

The finance ministers are unlikely to agree on co-ordinated action to reduce oil prices, but they will probably attempt to put collective pressure on the oil-producing countries to increase output in order to bring prices down.

Apart from the oil price and the weakness of the euro, the ministers will discuss the world economy. They will also consider a reform of the IMF and the World Bank that would, among other things, shift from public funds to private banks some of the risk in baling out troubled national economies.

Campaigners demanding faster debt relief for poor countries want the G7 ministers to tell the IMF and the World Bank to write off $70 billion (€79.5 billion) in debts to Third World Countries. The G7 countries have promised to write off all the debts owed to them by some of the world's poorest countries but Mr James Wolfensohn of the World Bank has limited debt write-offs to 30 per cent.

The G7 finance ministers are meeting on the margins of the IMF/World Bank conference, which started last Tuesday and ends next Thursday. The president and the chief economist of the IMF both called this week for intervention on behalf of the euro but the crucial element in yesterday's move was the participation of the US.

US Treasury Secretary Larry Summers repeated last night that his government favoured a strong dollar and when he met his counterparts in Prague today, some would be asking how strong was Washington's commitment to helping the euro back onto its feet.