Louvre Accord

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The Louvre Accord was signed by the then G6 (France, West Germany, Japan, Canada, the United States and the United Kingdom) on February 22, 1987 in Paris, France.[1] Italy had been an invited member, but declined to finalize the agreement. The goal of the Louvre Accord was to stabilize the international currency markets and halt the continued decline of the US Dollar caused by the Plaza Accord (of which a primary aim was depreciation of the US dollar in relation to the Japanese yen and German Deutsche Mark by the mutual agreement of the G7 Minister of Finance meeting (i.e. a conference of ministers of the "group of seven") that had been held in Louvre in Paris in 1987. Since the Plaza accord, the dollar rate had continued to slide, reaching an exchange rate of ¥150 per US$1 in 1987. The ministers of the G7 nations gathered at the Louvre in Paris to "put the brakes" on this decline.

France agreed to reduce its budget deficits by 1% of GDP and cut taxes by the same amount for corporations and individuals. Japan would reduce its trade surplus and cut interest rates. Great Britain would agree to reduce public expenditures and reduce taxes. Germany, the real object of this agreement because of its leading economic position in Europe, would agree to reduce public spending, cut taxes for individuals and corporations, and keep interest rates low. The United States would agree to reduce its fiscal 1988 deficit to 2.3% of GDP from an estimated 3.9% in 1987, reduce government spending by 1% in 1988 and keep interest rates low.

The dollar continued to weaken in 1987 against the Deutsche Mark and other major currencies, reaching a low of 1.57 marks per dollar and 121 yen per dollar in early 1988. The dollar then strengthened over the next 18 months, reaching over 2.04 marks per dollar and 160 yen per dollar, in tandem with the Federal Reserve raising interest rates aggressively, from 6.50% to 9.75%.

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