The European bloc's finance ministers and central bankers signaled a rethink after talks conducted by the Group of Seven policy makers over the weekend and conveyed a willingness to consider new ways to revive Europe's ailing economy in the wake of increased U.S. pressure to act.
According to one representative that attended the meeting, the Group of Seven is ready to lessen austerity, is willing to receive increased monetary aid and is looking to relax bank lending policies.
While discussing policy changes in London, new fiscal information emerged which increased the need for rapid action. The strong dollar hit oil and gold prices leaving German government bonds near their lowest level in a month while keeping European and Asian shares at five-year highs. The dollar's recent strength looked unlikely to decline as the Group of Seven gave a green light to Japan's efforts to spur growth with aggressive monetary easing.
The dollar has risen 5 percent against a basket of top currencies since February hitting a new 4-1/2 year high of 102.15 yen in Asian trading before dipping back to 101.69 yen and $1.2964 against the euro a short while later. The dollar's strong performance also took the shine off gold, which typically serves as an alternative to the U.S. currency. Spot gold fell as much as 1.5 percent to a low of $1,426.40 an ounce.
European officials will be meeting in Brussels again this week to discuss the economy and review aid payments for crisis-struck nations from Greece to Spain.
Europe's governments are also looking for ways to slim budgets as they face up to a record unemployment rate that is exceeding 12 percent as well as a deepening recession in the euro area. Economists from different countries are uncertain exactly what kind of fiscal stimulus will be instituted and what effect this will have in the crisis-torn 17-member currency bloc. European Central Bank President Mario Draghi told reporters after the G-7 talks that it's considering buying asset-backed securities among other options to support lending to small and medium-sized companies.
The shift in Euro zone emphasis comes amid signs that Europe's economic slump is lasting longer than forecasted and as pressure increases from overseas to help tackle a softening in global growth. According to a report from a Bloomberg News survey, the Euro gross domestic product fell 0.1 percent in the first quarter, stretching the recession to beyond the 15-month-long contraction in 2008-2009, during the last financial crisis.
Meeting with French Finance Minister Pierre Moscovici at a joint news conference in Paris on Tuesday, U.S. Treasury Secretary Jack Lew told reporters that European countries should use all means at their disposal to strike the right balance between boosting growth and improving their public finances. "Our view is that there needs to be a balanced approach between growth and fiscal consolidation," Lew said. "All tools need to be considered. Our encouragement is to use the leverage that is appropriate in Europe."