High oil prices give G8 summit economic headache

01 Jul, 2005

With US airlines losing $17,000 a minute, world leaders are under pressure to respond to record world oil prices when they discuss the state of the economy and trade at a Group of Eight (G8) summit in Scotland next week.
Ahead of the meeting, tension is simmering over British calls for a halt to farm export aid in rich nations for Africa's sake, floods of cheap Chinese exports and accusations that the United States is living dangerously beyond its means.
After oil hit a record of $60.95 a barrel this week, Canada confirmed that leaders would broach the risks of high fuel costs hurting US economic growth or smothering the already sluggish economies of much of continental Europe and Japan.
US Air Transport Association chief James May says American airlines are losing $17,000 a minute, which is roughly the same as one oil giant, France's Total, made in profit last year.
French President Jacques Chirac, losing popularity as well as the battle against unemployment, condemned oil price swings, erratic currency exchange rate movements and other "imbalances" in the world economy this week, calling for co-operation at G8 level to address the threat.
An official, speaking on condition of anonymity, told Reuters the leaders, whose agenda is devoted to climate change and aid for Africa, would take time out to discuss their own economic problems and publish recommendations in a statement.
German Chancellor Gerhard Schroeder is as worried as Chirac and pressing for the G8 to show it can adapt to a new economic order and a power shift towards low-cost China, where the city of Wenzhou alone makes most of the world's shoes and sex toys.
Diplomats were working flat out in London to prepare the way for a summit that starts on Wednesday and primarily involves United States, Canada, Japan, Germany, Italy, France, Britain and Russia, the G8 club.
Chinese President Hu Jintao is due to meet the G8 leaders on the first day of the July 6-8 meeting at the Gleneagles hotel, along with leaders from India, Mexico, South Africa and Brazil.
Canadian Prime Minister Paul Martin said on Wednesday there would be discussion of currencies and notably the Chinese yuan.
An official told Reuters the summit would repeat a call made more than a year ago in Florida for more exchange rate stability and for greater "flexibility" - code for urging China to ease state controls that keep its currency low and exports cheap.
The dollar's decline over the past few years has abated for now, easing complaints from Europe that its exporters are being hit by the corollary rise in the euro. But Beijing has said it will not be bullied into changing before it is ready.
Several leaders are expected to seize the chance as well to tell US President George W. Bush they are worried about record US deficits and the danger to economic stability if the rest of the world stopped pumping money into the United States.
British Prime Minister Tony Blair wants backing for a vast plan of aid to Africa and pledges to combat global warming but both have run into resistance, from the United States above all.
The more strictly economic issues are no less divisive. "There is no doubt that the United States and China must do more to increase energy efficiency and to save energy," German Economy Minister Wolfgang Clement told parliament, confirming that Schroeder would raise the issue in Scotland.
China is now the world's second biggest oil consumer and the latest spike in prices is blamed on demand rather than the cuts in Middle East oil supplies that sent the world into recession in the 1970s and early 80s. Even Blair's Africa plans have created a parallel problem over farm aid, two officials involved in negotiations said.
His finance minister, Gordon Brown, called on Wednesday for the United States and the European Union, always at loggerheads over farming, to agree to end farm export subsidies by 2010 in the name of fairer trade competition with Africa.
At least in Scotland, the big cars that leaders travel in will be less gas-guzzling. A Canadian company says their cars will run on an Eco-fuel it developed, partly using straw.

Read Comments