Baker and West German Officials Agree On Changes in Group of Seven's Accord
The U.S. and West Germany, recently feuding over monetary policy, agreed during a surprise high-level meeting to support unspecified changes in the seven-nation Louvre accord on exchange-rate and economic-policy cooperation.</br></br>Yesterday's agreement, which officials confirmed but wouldn't describe, emerged from talks in Frankfurt between Treasury Secretary James Baker and top West German officials, whom Mr. Baker has criticized recently for raising interest rates. Separately, West Germany's central bank acted yesterday to keep short-term interest rates from rising further.</br></br>In a statement after the meeting, the two countries pledged to continue February's Louvre accord, which set agreed exchange-rate levels and cooperative economic policies. But the statement noted that the pact is "flexible," and the officials are said to have agreed it should be altered to accommodate different exchange rates for the dollar and mark and different understandings on monetary policy. A similar alteration was made in the pact in April after talks between the U.S. and Japan. The U.S. and West Germany yesterday said they were consulting their partners in the so-called Group of Seven about the meeting.</br></br>For several days, the Treasury chief has publicly blasted Bonn for raising interest rates after pledging to stimulate economic growth. He has threatened that the U.S. might favor lowering the officially supported dollar exchange rate against the mark unless West Germany eased monetary policy. And he has said the U.S. would refuse to follow West Germany in raising rates.</br></br>This threat alone had already caused the dollar to fall against the mark, and the U.S.-West German dispute raised fears of a breakup of the Louvre accord itself, adding to turmoil in the financial markets. In the face of yesterday's massive stock market drop, the dollar -- which fell earlier in the day in overseas trading -- rallied in late New York trading against the mark in response to news of Mr. Baker's understanding with West German officials.