US fears single currency will slow European growth

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The US expressed concerns this weekend that moves towards a single currency will lead to slower growth in Europe. Robert Rubin, US Treasury Secretary, said: "We all affirmed the importance of continuing to direct policies towards sustaining non-inflationary growth. We recognise this requires credible programmes to reduce fiscal deficits in a medium term context."

However, the Americans used the G7 meeting in Washington this weekend to focus on the implications of the single currency for the world economy, having decided that policy in the run-up to the single currency had become a live issue.

The US is keen to see lower interest rates in Europe to avert the danger that tighter budgets will slow growth, but ran into some resistance from the Germans. "We had a good, frank discussion of where the economies are going," said Kenneth Clarke, Chancellor of the Exchequer.

But the meeting did produce a consensus that the world economy is in a satisfactory state, with steady non-inflationary growth in prospect in most regions. Mr Clarke said the Treasury's forecast of 2.5 per cent growth in the UK this year looked credible and the recovery would strengthen as the year went on. The fact that it had been growing below trend justified his decision not to move interest rates at the last monetary meeting, he said.

The G7 also reached agreement on how to finance the plan to lift the debt burden on poor countries. The Paris Club of individual governments owed money by third world nations unexpectedly agreed to write off up to 80 per cent of what is owed by qualifying countries. Although there is some doubt about how much of the Paris Club debt will qualify for such a big concession, it had not been expected to give an explicit figure.

The one remaining query is whether or not the IMF will have to sell 5 million ounces of its 104 million ounce gold reserves at some point in the future, and reinvest the interest to finance its share of the debt packages. Omar Davies, Jamaica's finance minister, speaking for Commonwealth ministers, said: "None of us believes this is adequate. But rather than compare where we are with where we should be, you have to compare it with where we are coming from."

Separately, Mr Clarke yesterday introduced an initiative to alter the IMF's articles. He urged that the fund should have as part of its purpose encouraging the liberalisation of capital flows, as these become an increasingly dominant feature of the world economy.

In his statement to the IMF's interim committee, which takes all the key housekeeping decisions, the Chancellor said the articles of agreeement "should be revised to give it an explicit mission to encourage further capital account liberalisation and to help members secure the benefits of free capital movements."

He also called for all countries to publish their annual "Article IV" consulation with the IMF, as Britain did for the first time this summer.

The Interim Committee yesterday finalised the IMF's new emergency overdraft facility, set up in response to the Mexico crisis. The New Arrangments to Borrow have brought in money from increasingly important economies such as Korea and Singapore.