BIARRITZ, France (AP) — The global economy craves a double shot of confidence right now but the best that leaders of the Group of Seven can offer is a less intoxicating cocktail: not making things worse.
Sharp differences over U.S. President Donald Trump's trade conflict with China and threats to escalate trade tensions with Europe, along with Britain's impending departure from the European Union on terms yet to be decided, are making it unlikely the leaders of seven rich democracies can come up with a unified road map on how to help global growth.
What the global economy doesn't need: an outcome like last year's summit in Canada. Leaders wrestled over a final joint statement, only to have Trump repudiate his signature shortly after leaving the summit and tweet criticism of the host, Canadian Prime Minister Justin Trudeau.
This year's host, French Prime Minister Emmanuel Macron, has indicated he will avoid that possibility by simply not having a statement. Instead, Macron may issue his own careful summary of what was discussed.
Even if the leaders, who discussed the economy Sunday morning, issue a final statement, it's unlikely to contain a solution to what's deterring investment and dampening business confidence. During Sunday's meeting on the economy, Trump and the others basically stated their contrasting positions on trade. EU officials pointed out the impact of trade tensions on the global economy and their support for dealing with China within multilateral institutions while Trump restated his U.S. vs. China approach.
In some ways the global economy is doing fairly well at the moment, with unemployment low in major economies. Yet world trade and industrial investment and production have slowed sharply — and those are the forces that could carry forward the decade-long economic expansion since the Great Recession.
By imposing tariffs, or import taxes, on Chinese goods, and by threatening to impose new ones on European autos and even French wine, Trump has sown uncertainty among businesses about their supply chains — the paths that raw materials, parts and goods take as they move through the globalized economy. Markets have become volatile, dropping sharply last week after the U.S. and China exchanged more tariffs.
Holger Schmieding, chief economist at Berenberg Bank in London, says that while the direct damage from the tariffs is so far limited, the lack of clarity over terms of trade is corroding confidence.
"Entrepreneurs and firms only invest when they feel confident about the outlook," he said. "The pervasive uncertainty about the future of global trade and the resulting need to restructure cross-border supply chains weighs heavily on industrial sentiment and investment."
Business, he noted, is driven by "animal spirits" - a term coined by 20th-century British economist John Maynard Keynes to describe the optimism needed to take risks and invest.
Trump's unpredictable America-first economic nationalism is upending decades of rules-based economic cooperation rooted in global institutions like the World Trade Organization and the Group of Seven itself.
Space for action is increasingly limited, and not just by Trump's disruption.
The U.S. Federal Reserve has little room to lower interest rates, and the European Central Bank's even less, with its key benchmarks at or below zero. They could resume stimulus programs that include buying bonds to lower borrowing rates. But borrowing rates are already extremely low.
Many governments still have debt hangovers from the global financial crisis, leaving less room for spending to stimulate investment and consumption. Germany has been running a surplus and has balked at taking on new debt to spend on things that could raise growth, such as roads and bridges and high-speed internet coverage for the whole country.
China's growth has slowed from its previous red-hot pace, which often happens when an emerging economy starts to catch up with the rest of the world. Aging populations in many developed economies will strain tax revenues and lower consumption.
Rock-bottom borrowing costs have led to calls for governments to borrow and spend more to take up where central banks have run short of ammunition. But so far, large spending initiatives are absent. Some $16 trillion in government bonds are showing negative yields, meaning investors are willing to pay for the privilege of lending to governments. High prices for bonds — which move opposite to yields — mean investors are more than willing to lend to governments at cheap rates.
"The tone of these messages from the G-7 will provide a signal about the prospects for upcoming negotiations," said Schmieding. "It would count as a success if — against the odds — the G-7 leaders were to emphasize areas of cooperation instead of just setting out their differences individually. In the end, Trump's tweets afterwards may move markets more than anything at the summit itself."
Interesting Items/National Security:
High-stakes gamble: Iranian envoy gets surprise G-7 invite
By SYLVIE CORBET, LORI HINNANT and DARLENE SUPERVILLE Associated Press
BIARRITZ, France (AP) — A top Iranian official paid an unannounced visit Sunday to the G-7 summit and headed straight to the buildings where leaders of the world's major democracies have been debating how to handle the country's nuclear ambitions.
France's surprise invitation of Iranian Foreign Minister Mohammad Javad Zarif was a high-stakes gamble for French President Emmanuel Macron, who is the host of the Group of Seven gathering in Biarritz.
Zarif's plane left Tehran on Sunday morning and touched down a few hours later at the Biarritz airport, which has been closed since Friday to all flights unrelated to the official G-7 delegations.
A senior French official, speaking on condition of anonymity to discuss the sensitive talks, said Zarif went directly into a meeting with French Foreign Minister Jean-Yves Le Drian.
The Iranian foreign ministry spokesman, Abbas Mousavi, said Zarif flew to Biarritz at the invitation of the French foreign minister. Mousavi said on Twitter that there would be no meetings or negotiations with American officials during Zarif's trip.
Asked whether the White House was aware of Zarif's visit, the French official said, "We operate on our own terms" but noted that Macron and U.S. President Donald Trump met for two hours Saturday and discussed Iran at length, as well as at the group dinner.
The official described it as a Franco-Iranian meeting for the moment and said that France "is working in full transparency with the U.S. and in full transparency with European partners." The Iranian had met with Macron on Friday.
Zarif, who is under U.S. sanctions, had been scheduled to go to Asia as part of a tour to seek support for Iran amid the American campaign against it since Trump withdrew the U.S. from Tehran's 2015 nuclear deal.
U.S. Treasury Secretary Steve Mnuchin said Trump had not "set preconditions" on negotiations with Iran.
Zarif arrived as fissures emerged among G-7 leaders over how to deal with Iran.
Macron said the leaders agreed during a dinner the night before that the French president could serve as a G-7 messenger to Iran. Trump denied agreeing to anything, and Macron was forced to play down his role and acknowledge Trump's status as "the president of the world's number one power."
The French official also said that based on Saturday night's dinner, France considers it important to check in with Zarif to continue to bring positions closer together and ease tensions. The official said the French are not "mediators" but think they can contribute to de-escalation.
Macron said he has no formal mandate to speak for the G-7 leaders in delivering a message to Iran, but that he would be able to address the issue in the context of what they agreed to during a dinner.
For several months, Macron has taken a lead role in trying to save the 2015 nuclear accord, which has been unraveling since Trump pulled the U.S. out of the agreement. His office said the G-7 leaders agreed he should serve as a go-between with Iran.
"I haven't discussed that," Trump said Sunday morning. He described the dinner as "very, very good" and blamed the media for anything that implied otherwise.
But it seemed from other accounts that the previous night's dinner had been tense, with a clear divide between him and the rest of the G-7.
British Prime Minister Boris Johnson, greeting Macron for a morning meeting, congratulated the French president and shook his hand.
"Well done. Bien joué," Johnson said, using the French expression for "well played" often uttered in a successful round of cards.
"You did very well last night. My God that was a difficult one. You did brilliant, you did brilliant," he added.
Tristen Naylor, deputy director of the G7 Research Group, described the invitation as "a wildcard move."
"The risks to the French president were quite large. He could have evoked a very strong and negative reaction from the American president — everything from outright condemnation to actually the American president just saying enough of this and getting on the plane and flying away," Naylor said.
But the invitation was also something of a mirror of Trump's own high-stakes diplomacy.
"Something that we've learned over the 2 ½ years about the American president is that what works with him, what resonates with him, is surprise, is a big move, something flashy," he said. "And the French president has taken a page from it, I think, executed a maneuver out of it with great aplomb."
German Chancellor Angela Merkel said Zarif's presence was parallel to any G-7 events and that everyone agreed to seek more talks rather than tensions.
She added: "It is absolutely right to explore every possibility, and what we discussed yesterday — which wasn't a formal assignment for anyone. But Iran certainly should know what we discussed."
The G-7 leaders regrouped Sunday to focus on what they can do to boost growth at a time of heightened uncertainty. Manufacturers around the world are smarting from the trade dispute between the U.S. and China, which has led to new import taxes on hundreds of billions of dollars-worth of goods. Businesses don't know where tariffs will be imposed next.
The White House had said putting the economy on the agenda was Trump's idea, but the G-7 has for over four decades always included a focus on the economy. It was founded as a response to the Arab oil embargo in the 1970s and the recession that followed.
The backdrop is particularly worrying this year, with the U.S. economy slowing and Germany and Italy close to recession.
Meanwhile, Britain is due to leave the EU in October, and there is no agreement on how it should happen, raising the possibility of a disorderly exit that could wreak havoc for business in Europe.
Johnson said Britain and Europe needed to prepare for that, saying the prospect of a Brexit deal was "touch and go."
The G-7 summit includes the heads of Britain, France, Germany, Japan, Canada and Italy as well as a representative of the 28-country EU.
In the nearby town of Bayonne, protesters demanded Macron do more to protect French workers and the planet.
A mix of activists, some wearing yellow vests, carried portraits of the French president as they marched Sunday in solidarity with environmental activists who removed official portraits of Macron from town halls around France earlier this year to protest his climate change policies.
Internationally, Macron is a vocal champion of fighting climate change, and has challenged Trump on the issue. At home in France, however, activists accuse him of lagging on promises to wean France from fossil fuels.
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