G-7 Leaders Reiterate Fixes for Global Economy

By , Staff writer of The Christian Science Monitor

LEADERS at the Munich summit of the world's most advanced industrial nations agree that if they are to pep up the weary global economy, they must reduce their own budget deficits, sustain low inflation, and promote free trade.

As is true of many goals laid out in past economic summits of the Group of Seven - which includes Canada, France, Germany, Great Britain, Italy, Japan, and the United States - this is easier said than done.

Finance ministers and heads of state set similar goals at last year's summit in London, and the year before in Houston, yet real economic growth among the G-7 is crawling at under 2 percent and unemployment is growing. Roughly 23 million people are jobless today in the G-7 countries compared to 18 million in 1990.

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Although concerned by stubbornly slow growth, summit participants tried to point out that some progress has been made in the last two years. For example, the average rate of inflation in G-7 countries is expected to decline to about 3.5 percent this year.

Further, the US has moved to revive its economy, with the Federal Reserve dropping its discount rate a half a point last week to 3 percent - the lowest discount rate in 29 years.

The G-7 leaders also supported recent steps taken by Germany and Italy to control their budget deficits, and welcomed Japan's newly announced five-year plan to stimulate its economy and open its markets.

German Finance Minister Theo Waigel won Cabinet approval last week for his 1993 "austerity" budget, which was put to the Cabinet two weeks early to show good faith to the G-7. Usually a model of fiscal responsibility, Germany in May was battling a 4.6-percent rate of inflation and has seen the public deficit balloon because of the costs of reunification.

Mr. Waigel's budget limits overall spending to a 2.5 percent nominal growth rate, well below current inflation, and cuts the government's net borrowing requirements by 2.5 billion deutsche marks ($1.58 billion).

Italy's new government is also promising fiscal responsibility. Italian Prime Minister Giuliano Amato has spent much of the time here in Munich explaining his plan to fight inflation and his budget deficit. He wants to slash 30 trillion lire ($26.1 billion) from the deficit through a combination of tax increases and spending cuts.

At past summits much has been made of the need to coordinate low interest rates among the G-7 in order to stimulate economic growth. Germany, especially, has been criticized on this point.

But at this summit, what's being nicknamed the "Sinatra Doctrine" is taking over. Countries are saying they will handle their problems their way - and they aren't meeting much resistance from their partners.

In the case of Germany, summit participants acknowledged that high interest rates there are being applied to bring inflation under control. Lower inflation should pave the way for lower interest rates in the long term.

"The timing may be a little different, but the overall thrust of policy [among the G-7] remains the same," said Canadian Finance Minister Don Mazankowski.

Japan is also pledging action. Its trade surplus with the rest of the world is soaring to record levels and its trading partners are demanding a more open market in Japan. In Munich, the Japanese unveiled a five-year plan in which Tokyo will try to stimulate economic growth to 3.5 percent by increasing public spending. Hopefully, foreign businesses will get a piece of this pie, especially if Japan follows through and makes "further improvements in market access," as the plan states.

Time and again summit leaders stressed the need for a successful conclusion of the world trade talks, the General Agreement on Tariffs and Trade. The British on Monday put forward new proposals on GATT, but the optimism expressed at the beginning of the summit, that Munich could be the right place for a political breakthrough in the stalled talks, has faded.

"Is [a breakthrough] going to happen in the next three days? I don't think so. Is it going to happen by the end of this year? Maybe. Is it going to happen within the next year or so? Absolutely. It has to," said US Treasury Secretary Nicholas Brady.

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