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International -- Intl' Business: COMMENTARY
COMMENTARY: THE G-7 SHOULD STOP ACTING LIKE THE SEVEN DWARFS (int'l edition)
On June 16, the final evening of the economic summit in Halifax, the Group of Seven leaders gathered under a tent to watch Cirque du Soleil, the avant-garde Canadian circus troupe. Even these jaded politicians marveled as nearly a dozen acrobats hopped one by one onto a moving bicycle--and clung precariously as a lone peddler circled the arena.
It would have been more fitting had the acrobats all tumbled to the floor. For the Halifax summit proved only too convincingly that the leaders of the seven largest industrial democracies are incapable of moving in tandem to address the major problems that are facing the global economy.
To be sure, President Clinton and his counterparts from Canada, Japan, France, Germany, Britain, and Italy tried to play the statesmen when they backed modest reforms for averting another financial crisis like the one that hit Mexico earlier this year. But they took a pass on the hot issues: the bitter trade dispute between the U.S. and Japan that could undermine the new World Trade Organization, the currency imbalances that pose a serious threat to Japan's fragile economy and banking system, and the worrisome global slowdown that could send some of the G-7 members into recession.
The upshot: The odds are now greater that one of these problems will escalate into a serious crisis. "They didn't begin to revitalize the G-7 to manage the international economic system," notes former Bush adviser Robert B. Zoellick. "They did the minimum of what was expected."
Not that there wasn't plenty to do. The Halifax summiteers should have pushed Japan and Germany--both of which enjoy current-account surpluses--to lower their interest rates. With the U.S. taking overdue action to cut its fiscal deficit, such coordinated efforts could have helped revive growth in Europe and Asia, eased downward pressure on the dollar against the yen and the mark, and perhaps breathed new life into the faltering global economy. Instead, the G-7 simply issued an upbeat communique that glossed over these problems. "They gave no evidence of even considering the risk of a global turndown," says C. Fred Bergsten, director of the Institute for International Economics. "They were derelict in their duty."
This has not always been the case. In the years after former French President Valery Giscard d'Estaing convened the first summit in Rambouillet in 1975, the G-7 rose to the challenge at critical junctures: In 1978 in Bonn, for instance, Germany and Japan agreed to stimulate their economies, while the U.S. narrowed its current-account deficit by curbing oil imports. And in the mid-1980s, the finance ministers of the G-7 went to extraordinary lengths to orchestrate a massive devaluation of the dollar that helped ease protectionist pressures in the U.S. Congress.
But in recent years, the G-7 governments have sought to play down expectations of what they can achieve. "The world has changed since 1975," says one U.S. official. The G-7, which now represents just half of global output, he says, "can't single-handedly shape the world economy anymore." Given their crushing debt burdens, the G-7 governments feel constrained from taking forceful fiscal action--and that leaves them even more vulnerable to the whims of the quicksilver capital markets.
Still, they're not powerless. In Halifax, the group could have seized the opportunity to publicly jawbone the Japanese to pursue the fiscal stimulus and trade liberalization that could help weaken the yen--much as the Europeans pestered the U.S. during the 1980s to close its budget deficit.
VEHEMENT OBJECTIONS. This year's summiteers seemed particularly reluctant to criticize Japan. At the close of a bilateral meeting between Clinton and Japanese Prime Minister Tomiichi Murayama, the President signaled his intent to publicly recommend that the Japanese pursue fiscal stimulus. But when the Japanese vehemently objected to any mention of their economic woes, he backed off.
That typifies the "nonaggression pacts" that the G-7 leaders have struck--and serves as an example of why the group badly needs retooling. For starters, the seven governments should leave the hordes of aides and handlers at home. Some of the most productive summits have occurred when each country sent no more than 10 or 12 of their top officials. In addition, the G-7 should consider inviting their central bankers, who are increasingly calling the shots in the global economy.
The participants must be willing to mix it up a little more with each other. Rather than stage-managing the affair to enhance their political images, the G-7 leaders must be willing to take bold action--even if it means falling off their bicycles.
Washington correspondent Foust and Toronto bureau chief Symonds were among the hordes at Halifax.By Dean Foust and William C. Symonds