Heads in the sand at the G8

THE leaders of the biggest industrial nations, the G8, could not have timed their annual meeting better. It starts today in Canada against a background of mounting concern about the rapid slide in the dollar, the worst trade tensions for years between Europe and the United States, a very uneasy geopolitical situation from the Middle East to Kashmir, the possible financial collapse of Brazil and a distinct chance that the world is heading for recession.

But our leaders say they will not be talking about any of that. The formal agenda ranges from fighting terrorism to combating poverty in developing countries, in particular Africa.

Yet one wonders how long they can keep their heads in the sand. Since its high point this year on 1 February, the dollar has plunged 12% against the euro, with the pace of decline quickening in the past two weeks. At the same time, share prices on Wall Street have slumped, an unusual development because the US economy grew at an annual rate of 6% in the first quarter, suggesting a recovery from last year's recession might be under way.

Three factors help to account for Wall Street's weakness: the belief that share prices are still overvalued measured by historical yardsticks, fear that the US economic recovery will be weak or short-lived so that company profits will not rebound, and the worry that foreign investors are increasingly reluctant to supply the $1.2bn a day America needs as capital inflows to finance its current account deficit. The world needs a healthy America to buy its exports. It looks anything but healthy as the dollar slides, however, and that could spell trouble for everyone.

That is just one problem. While the British in their pre-summit briefing tried to play down the problems on trade, officials in Continental capitals were much less circumspect. Their message was that they were spoiling for a fight. President George Bush's threatened imposition of protective tariffs on steel imports last year caused outrage which still simmers because it served a blatantly domestic US political agenda.

Recently, the EU has appeared to back away from its threatened retaliation, not because it has calmed down but because it sees the duties are not altogether popular within America, where major steel users such as the US motor industry are publicly opposing them. For the moment the EU is content to leave Bush to his embarrassment.

Not so on agriculture, however. The Bush administration also plans vastly to increase subsidies to US farmers. Cutting subsidies and opening up industrial markets to developing-country agricultural products is at the core of the agreement reached last year in Doha for a new round of trade liberalisation designed to promote development. Washington's decision is seen as a threat to the Doha round. It flies in the face of all the efforts and promises made there to help poorer countries cope with globalisation by opening up Western markets to their products.

Important as the US administration believes the war on terrorism to be, it faces a rocky ride at the summit if that is all it is willing to talk about.

Dinner cue

WITH Bank of England Governor Sir Edward George on one side of him and Chancellor Gordon Brown on the other at the Mansion House banquet tonight, there could be no better time for the Lord Mayor to enter a plea that the turmoil stemming from the collapse of Enron and the associated eating disorders displayed by many financial institutions should not lead automatically to more regulation. We might expect him to argue that it would be far better for firms to look to their own conduct and that of their employees and ask whether it has always been of the highest ethical standards. If it has, they have nothing to worry about. If not, they have every incentive to sort themselves out.