G-7 Finance Officials to Discuss Loose Monetary Policy Risks

Financial chiefs from the Group of Seven nations will discuss policies to achieve sustainable economic growth and fight potential risks from the present loose monetary policy, a German official said Tuesday.

“We want to discuss debt, we want to discuss investment, we want to discuss growth,” said the official during a briefing on the G-7 meeting of finance ministers and central bank heads due to begin in Dresden on Wednesday.

Germany holds the G-7 presidency this year. The results of the financial crisis that began in 2008 have raised most G-7 countries’ sovereign debt levels and resulted in central banks’ loose monetary policies, with interest rates below or close to zero.

 “It must be allowed to ask whether the present monetary policy is contributing to sustainable higher growth or whether it bears own risks,” the official said, declining to be identified. Loose monetary policy only buys time but offers no solution towards achieving sustainable higher growth, he said.

 He added that while Europe has overcome the sovereign crisis in the best possible way, it’s now crucial to set the right course for sustainable growth. The meeting will discuss the choice of direction and instruments to achieve this goal.

 At their spring meeting in Washington last month, the Group of 20 major economies warned that currency volatility, low inflation and high debt levels threaten to undermine an already uneven global economic recovery.

 Prior to that meeting, German Finance Minister Wolfgang Schaeuble identified his country’s three working priorities: making the global economy more dynamic, closing remaining gaps in financial market regulation and achieving closer international cooperation in tax matters.

 During their meeting in Dresden, the top financial chiefs will also discuss a possible debt restructuring for Ukraine, but a deal is unlikely because Russia–one of Ukraine’s main creditors–won’t be represented at the meeting, the German official said. The financial troubles of cash-strapped Greece will only be an issue at the G-7 meeting in Dresden if officials from the other countries want to discuss it.

 The German official called it an “encouraging sign” that Greece has said it will repay its loan to the International Monetary Fund, due June 5. But he warned time is running out for Greece to reach a deal with its international creditors.

 Including the Chinese yuan in the International Monetary Fund’s currency basket will also be raised at the G-7 meeting, with Germany supporting such inclusion, the official said. The G-7 comprises Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. Their aggregated gross domestic product of the global economy is nearly 50%.

wsj.com