G-7 Muffles Trade Quarrel as Greek Sideline Talks Take Limelight

12 May 2017
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Officials arriving on Thursday for talks in the Southern Italian port of Bari — a crossroads of commerce for more than two millenia — downplayed any focus on their festering disagreement after two abortive Group of 20 discussions this year suggested the Trump administration won’t sign up to the long-existing global consensus on free trade.

That leaves sideline talks on Greece as the most fruitful arena for talks for now. On Wednesday, a senior U.S. Treasury official said they are looking for Europe to take the lead in solving the country’s debt problem. On cue, representatives from the International Monetary Fund, the European Central Bank, as well as Germany, Italy and France are set to discuss it, according to European Union officials who asked not to be named as meetings of that so-called Washington Group are informal, according to Bloomberg.

“Trade is explicitly off the table — they’re not going to clinch anything at all,” said Isabelle Mateos y Lago, chief multi-asset strategist at BlackRock. But on Greece, “this is the right grouping within which to reach an agreement on some of the more political aspects.”

Talks on easing Greece’s debt load have been picking up steam amid hopes of striking a deal later this month. Among the preferred options is the use of leftovers from the country’s latest euro-area-backed bailout to repay about 12.4 billion euros ($11.4 billion) of IMF loans to Greece outstanding, according to EU officials.

Budget Performance
Loans from the European Stability Mechanism carry much lower interest and much longer maturities than those extended by the fund, meaning that such a swap operation would ease Greece’s funding needs in the immediate future, even as the overall impact on debt sustainability will be limited.

A key issue in the talks is the assumptions about Greece’s budget performance after 2018, when the current bailout expires. The IMF has repeatedly raised doubts about Greece’s ability to maintain a stellar budget record for decades. Less ambitious fiscal targets, though, would increase the need for debt relief.
“I’m not talking about precise meetings but obviously we have the occasion to discuss here” on Greece, Pierre Moscovici, the EU’s Economic Affairs commissioner, told Bloomberg Television. “We need the IMF on board. There are discussions with the IMF, the IMF is involved and I think it is also positive.”

One advantage of talking about Greece is that the country isn’t represented at the G-7 or in the Washington Group, so it can’t disagree. By contrast, trade remains highly contentious and may loom large in Bari as finance ministers and central bank governors meet.

Bad Memories
At the G-20 in the German spa town of Baden-Baden, officials almost left trade out of their communique as U.S. Treasury Secretary Steven Mnuchin pressed for them to agree it should be “fair” rather than “free” — while a month later in Washington, he crystallized that position, citing the President Donald Trump as favoring “reciprocal free trade.”

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Even that was somewhat of a departure for an administration that has pledged to rebalance global commerce in its favor, repatriate American manufacturing jobs and right the wrongs it sees as emanating from the current World Trade Organization-centered system.
Moscovici, who said in March after Baden-Baden that “I cannot overstate the importance of avoiding any rollback” on free trade, was reluctant to reopen those wounds.
Mnuchin attends the talks as the Trump administration faces a political firestorm back home, which has called into question its power to implement an ambition economic agenda.
“We’ve discussed already in the G-20 twice — once in Baden-Baden, the other time in Washington,” he said. “We are not here going to discuss about that.”

So any more formal progress remains unlikely for now even if that means trade becomes the elephant in the room in talks formally covering the global economy, financial institutions and fighting inequality. The officials’ meeting in Bari will be followed in just two weeks by G-7 summit in Sicily — part of Donald Trump’s first international outing as President.
“I don’t think they’re holding their breath over this meeting,” said Torsten Slok, chief international economist at Deutsche Bank in New York. “Still, “that doesn’t mean we’re not watching it very carefully.”

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