March 5, 2021

G-20 Forum to Be Colored by Rhetoric on Currency

MOSCOW — The debate over a currency war arrived in Moscow on Friday as finance officials from the Group of 20 leading economies sparred over Japan’s proposed expansive policies, which have driven down the value of the yen.

The G-20 forum, which put together a huge financial backstop to halt a market meltdown in 2009, is back in the spotlight after a week in which the Group of 7 rich nations tried, and spectacularly failed, to speak on currencies with one voice.

The G-7 has long been the powerhouse of financial diplomacy. But tension between Washington and Tokyo has risen over a bid by Prime Minister Shinzo Abe of Japan to end two decades of deflation.

The G-7 issued a joint statement Tuesday reaffirming “our longstanding commitment to market-determined exchange rates.” But the show of unity was quickly undermined by separate background comments to the news media criticizing Japan.

Russia, as host of the talks, says the G-20 — which includes leading emerging nations alongside rich countries and accounts for 90 percent of the world economy — will back the thrust of the G-7 text when the larger group issues its communiqué, expected Saturday.

Deputy Finance Minister Sergei Storchak of Russia said that discussion of a draft statement was proving “difficult” but that the final text would not single out Japan for criticism.

“There is no competitive devaluation, there are no currency wars,” Mr. Storchak said. “What’s happening is market reaction to exclusively internal decision making.”

On Friday, Mario Draghi, the European Central Bank president, criticized the debate on currencies. “All this chatter that has been undertaken in the past few weeks is either inappropriate or fruitless — in all cases it’s self-defeating,” he said.

When the G-20 last met, in November, its statement included a call to “refrain from competitive devaluation of currencies.” Tokyo took the omission of a similar warning by the G-7 in the past week to mean that its policies had won a free pass. The Japanese central bank has agreed to pursue unlimited monetary easing — the manipulation of asset purchases and money supply — until its inflation target of 2 percent has been met.

“As the G-20 meeting in Moscow gets under way, the battle lines are drawn — it isn’t G-6 against Japan as much as it is G-7 against G-13,” analysts at the French bank Société Générale wrote in a research note.

The yen has fallen about 20 percent since November, when it became clear that Mr. Abe was likely to become prime minister, causing a rally in Japanese stocks that the government hopes, will start growth by encouraging savers to spend and companies to invest.

Russian officials note that Japan has not intervened on currency markets to weaken the yen, suggesting that Tokyo would not be singled out as a miscreant.

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DealBook: A Financier’s Farewell to Trichet

Sebastien Pirlet/ReutersJean-Claude Trichet, president of the European Central Bank.

LONDON — At least one financier will not be sad to see the European Central Bank president, Jean-Claude Trichet, retire this month.

In an unusual step, Edouard Carmignac, founder and chairman of the French money manager Carmignac Gestion, took out full-page ads on Wednesday in four newspapers to deliver an open letter to Mr. Trichet that starts: “Farewell, you certainly won’t be missed!”

The publications in The Financial Times of London, Spain’s El Pais and the French newspapers Le Figaro and Le Monde, come a day before Mr. Trichet is expected to chair his final meeting of the E.C.B. committee and hand over the job to Mario Draghi at the end of the month.

In the letter, Mr. Carmignac asked Mr. Trichet to cut the interest rate to 0 percent from 1.5 percent and pledge to “purchase unlimited amounts of distressed countries’ sovereign debt.” Such purchases would not accelerate inflation but “merely lessen the strength of the powerful deflationary forces” while also pushing down the euro, Mr. Carmignac wrote.

“But wouldn’t a weak euro be preferable to no euro at all?” he argued in the letter.

Mr. Carmignac also accused Mr. Trichet of worsening “the impact of the 2008 crisis by underestimating its scale and, more recently, endangered the euro with ill-considered rate hikes and clearly inadequate support for the debt of weakened European countries.”

“The situation is serious and calls for immediate actions,” Mr. Carmignac wrote. “The vicissitudes of the European construction imply that neither politicians nor any institution but the E.C.B. is in a position to act decisively. Hence, the formidable task of filling this role is yours. I sincerely hope that the zealous senior civil servant we all know will reveal himself a true statesman.”

Mr. Carmignac founded Carmignac Gestion in 1989 and is known for generating large returns by making bold bets on stocks in 2008, when many of his rivals struggled. Carmignac Gestion has almost 50 billion euros ($66 billion) of assets under management across its 19 funds.

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DealBook: Ex-Bundesbank Chief to Become UBS Chairman

Axel A. WeberKai Pfaffenbach/ReutersAxel A. Weber, the former German central bank president, was selected to join UBS’s board as vice chairman in 2012, then chairman a year later.

8:16 p.m. | Updated

UBS, the Swiss bank, said Friday that it had asked Axel A. Weber, the former German central bank president, to join its board next year, and that it planned to appoint him chairman in 2013.

Mr. Weber will join UBS’s board as nonindependent vice chairman, subject to approval by the bank’s shareholders in 2012. If elected, he would then be nominated to succeed Kaspar Villiger as chairman of the board the following year.

“I am pleased that I can present a board member and future chairman who is an internationally renowned personality with an outstanding reputation,” Mr. Villiger said in a statement. “His appointment will guarantee a smooth leadership transition and stability.”

Mr. Weber was a candidate to replace Jean-Claude Trichet as president of the European Central Bank before he withdrew from consideration in February after making some controversial comments about monetary policy. He also resigned from the Bundesbank, the German central bank, saying he would return to academia. Before becoming a central banker, Mr. Weber was an economics professor at universities in Germany.

“Being able to help shape the bank’s future is an attractive prospect,” he said in the statement.

Mr. Weber, 54, was also seen as a potential candidate to take the top job at Deutsche Bank, once the contract of the current chief executive, Josef Ackermann, ran out in 2013.

UBS’s chief executive, Oswald J. Grübel, is still trying to repair a bank that was one of the hardest hit in Europe during the financial crisis. Its role in a recent legal case over tax evasion by some of its American clients had also hurt the reputation of its wealth management operation.

Some analysts have said it is unclear how long Mr. Grübel will stay at UBS. Mr. Grübel, a 67-year old former chief executive of Credit Suisse, came out of retirement to help turn UBS around in 2009.

Mr. Grübel cut jobs, shrank the balance sheet and strengthened the private banking operations, but he said earlier this year that the investment banking unit’s performance was still not satisfactory.

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European Central Bank Makes First Rate Hike Since 2008

FRANKFURT — Worried about rising prices, the European Central Bank raised its benchmark interest rate for the first time since 2008 on Thursday, risking damage to weaker economies like Portugal, which only a day ago became the third country to request an international bailout.

A short time earlier, Britain’s central bank left its benchmark interest rate at 0.5 percent despite similar inflation concerns, after recent economic data painted a mixed picture of the strength of Britain’s recovery. The central bank also kept its bond-purchase plan at £200 billion, or $325 billion.

But the E.C.B. is taking a more hard-line approach in raising its rate to 1.25 percent from the historic low of 1 percent, where it has been since the depths of the global financial crisis. The bank president Jean-Claude Trichet and other members of the governing council had warned repeatedly over the past month that they were worried that higher oil prices would fuel a general increase in prices.

Many economists and political leaders said that a rate increase for the euro zone was premature and unnecessary, arguing inflation is not a problem when factories are still not operating at full capacity, and that higher inflation is solely the result of volatile commodity prices.

“We cannot see what good purpose raising interest rates now will accomplish,” Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., wrote in a note this week.

The E.C.B. move will hurt Greece, Ireland and Portugal when they are already having severe problems borrowing money at reasonable rates, critics said. Portugal’s caretaker government gave in to market pressures on Wednesday and joined Greece and Ireland in seeking an emergency bailout.

The rate increase will also raise monthly mortgage payments in countries like Spain and Ireland where many people have variable-rate loans.

However, a rate increase will be welcomed by individuals and companies who keep their money in savings accounts or low-risk investments, and have been earning interest below the rate of inflation.

Lorenzo Bini Smaghi, a member of the E.C.B. governing council, has argued that a rate increase would actually hold down long-term borrowing costs, by giving lenders confidence that inflation will not erode their profits.

Analysts expect the rate increase Thursday to be the first of two or three such hikes before the end of the year. Mr. Trichet will hold a press conference at 2:30 p.m. Frankfurt time, where he is likely to be asked how fast the E.C.B. will push rates back to more normal levels.

Economists at Nomura forecast that the next increase will come in July, and that the benchmark rate will reach 2.75 percent by the end of 2012, still a low rate by historical standards. But the E.C.B. could also hold off on further increases if there are signs that higher energy prices are becoming a drag on European growth.

“Any signs that the recovery is significantly losing momentum will likely make the E.C.B. pause its rate-hiking cycle,” Nomura economists said in a note Tuesday.

The E.C.B. may also say Thursday how it will deal with weaker banks in countries like Ireland, Greece and Germany that have become overly dependent on cheap central bank loans to finance their activities. Mr. Trichet and other governing council members have said they want to remove the financial system from life support, and avoid the risk of asset bubbles or other problems caused by too much cheap money.

In a break from the historic pattern, the E.C.B. is moving to slow the economy and head off inflation ahead of the Federal Reserve. More than the American central bank, the E.C.B. is required by charter to make fighting inflation its top priority.

E.C.B. resolve was probably strengthened by recent data. Inflation in the euro area rose at an annual rate of 2.6 in March, up from 2.2 in February and above the E.C.B. target of just under 2 percent.

The E.C.B. last raised its benchmark rate to 4.25 percent from 4 percent in July 2008. The following October, as the financial crisis took on alarming proportions, the E.C.B. reversed course and began a series of cuts that brought the benchmark rate to 1 percent in May 2009.

Rates in Britain also fell to a record low, but the Bank of England rate is likely to wait for more data at the end of this month before making any decision to lift interest rates, economists said.

Britain’s central bank fears that raising interest rates too soon could damage an already weak economic recovery. Some economists said consumers are still getting used to government spending cuts, which are coming into force this month, as well as higher taxes and oil prices. That made it harder for the Bank of England’s policymakers to judge whether the economy is strong enough to withstand an increase in interest rates.

Alan Clarke, an economist at BNP Paribas in London, said a rate increase by the E.C.B. could put additional pressure on the Bank of England to raise its own rate because it could weaken the pound. “A weaker pound in our recent experience has led to higher inflation,” he said.

The Bank of England had been trying to balance an inflation rate that is the highest since 2008 with economic growth that remains slow. In a meeting last month, central bank officials said that there was “merit” in waiting to see how the government’s austerity program, which includes thousands of public sector job cuts, would affect the economy.

Recent economic data renewed some concern that Britain is still struggling after shrinking 0.5 percent during the last three months of 2010. Britain’s manufacturing sector stopped to grow in February and overall industrial production fell unexpectedly. Yet, the services sector grew at its fastest pace in 13 months in March.

The average price of houses was little changed in March as potential buyers delayed decisions because of concerns about economic growth and as higher consumer prices hurt disposable incomes.

Julia Werdigier contributed reporting from London.

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