Germany needs an adult in the finance ministry...

 

The news that Germany's finance minister Peer Steinbruck would go on a safari instead of attending the G7 meeting of finance minister last weekend, had been playing in Germany for some time. Germany after all holds the G7/G8 presidency. In other words, Steinbruck was not only one of the seven guys who did not show up. He was the host.

 

The story had already died down in Germany, but it flared up again for a simple political reason. The G7 meeting did not agree on anything, and now people are asking whether it is a coincidence that a meeting the chairman does not attend fails to produce any results. I have come across a number of gaffes by politicians - and by journalists, too, to be fair. But this ranks pretty much in a league of its own.

 

Mr Steinbruck is one of those provincial German politicians with little interest in global affairs. He always claimed Helmut Schmidt as his idol. Schmidt was also a finance minister before he became chancellor in 1974. But Schmidt not only attended G7 meetings, he actually used them as a tool for policy co-ordination. When Steinbruck was offered the chairmanship of the influential monetary and financial committee of the IMF, after Gordon Brown steps down this summer, he declined.

 

Steinbruck's absence is not only insensitive under normal circumstance, but also politically dangerous in the light of the current French election campaign. Politicians such as Nicolas Sarkozy have (wrongly in my view) been blaming the euro's exchange rate for the problems of the French economy. The G7 finance ministers are the group, where this issue could be raised. The French finance minister did try to raise it, but there was no German finance minister to support him. Yes, Steinbruck sent his deputy, Thomas Mirow, but deputies simply do not have the same political standing. Mirow is not even a cabinet minister. He can pursue an agreed agenda, but he cannot create his own.

 

The euro's exchange may not be a problem right now, as the euro economy is doing relatively fine, but it will be. The financial markets have rightly taken the G7's inaction as a sign that there is no more any interest in the subject - what other conclusion can you arrive at if the chairman of the G7 goes on holiday. This means that the euro will continue to rise against both dollar and yen, and if this continues for a while, the time will come, when the euro's strength becomes a problem. European industry will squeal at $1.40 to the euro, and this is when the issue to going to be back on the political agenda. So we are going to witness a sudden swing from complacency to panic - but unfortunately no consistent approach at either time.

 

Furthermore, what will Mr Steinbruck now do if he must bring this issue back onto the table? His reluctant counterparts from the US and UK will tell him that he had his chance in April, but decided to go on a shoot. Steinbruck has damaged the G7, and with it the prospect of some global co-ordinated action, not now, but when it is needed in the near future. The foreign exchange markets have taken the right interpretation from the G7 meeting. Nothing will happen, certainly not until euro/dollar falls to $1.40. It would be best if that awful man would simply started to retire and let someone take over with a greater sense of responsibility. When the going gets tough on foreign exchange markets, Germany and the rest of Europe will need an adult in the finance ministry.

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