Leaders to chart new course?

Press, 20 July 1981, Page 9

Leaders to chart new course?

By HENRY OWEN, of the “New York Times" The Ottawa economic summit meeting could be the most important yet. The heads of Government of the seven main industrial countries will meet to address not only the usual specific issues — macro-economic policy, energy, trade, etc. — but also the future of economic summitry itself, and, thus, of the co-operation among the heads of Government that has enabled them to confront serious and unsolved domestic economic problems in the later 1970 s without relapsing into the beggar-thy-neigh-bour economic policies with which their predecessors reacted to such problems in the 19305. When Ottawa convenes, France, the United States, Britain, West Germany, Japan, Italy and Canada, in that order, will each have played host to a summit meeting. At Ottawa they will have to decide whether a new cycle should be started and, if so. under what ground rules. The central question will be whether summit meetings should be converted from decision-making meetings into forums for general conversation about strategy, beginning with Ottawa' itself. At first glance, this seems like an issue of less-than-shattering importance, but a review of past summit meetings suggests that a good deal is at stake. Economic summitry began in 1975 when the leaders of major industrial countries were confronted by a new set of international economic problems after the first oil shock. Chancellor Helmut Schmidt of West Germany and President Valery Giscard d’Estaing of France concluded that these problems could only be resolved if the heads of Government met. Lower-level meetings had failed to make progress. The most serious of these disagreements was that between France and the United States on international monetary policy. The Bretton Woods system of fixed exchange rates had broken down; French failure to accept the shift to flexible rates endangered the efficient functioning of the world monetary system. At the Rambouillet summit meeting in November, 1975, Mr Giscard accepted the move to flexible exchange rates in return for an agreement from the other

leaders that national macroeconomic policies should be co-ordinated, to narrow the resulting monetary fluctuations. But the bargain was not fulfilled. When the leaders met a year later in Puerto Rico they found that, although the international monetary front had improved, “needed stability has not yet been restored” — that is, co-ordina-tion of domestic economic policies had not been achieved. To make good this r failure, they pledged to give priority to fighting inflation, even if this meant slowing the rate of economic recovery in some of their countries. That agreement was shortlived. President Carter came to office committed to an early acceleration in economic growth. The British Government also favoured higher growth, particularly by West Germany, whose expansion it thought would help other European countries increase their exports to the Federal Republic. The German and Japanese reactions were unenthusiastic, to put it mildly. After some fairly sharp argument in preparatory meetings, the London meeting agreed that countries with stronger economies — Germany. Japan and the United States — should seek higher rates of growth, while the other countries should concentrate on fighting- inflation. That only the United States fulfilled the growth target pledged at London should not obscure the fact that Germany and Japan took additional expansionist actions that they would not otherwise have adopted. Indeed. their actions, which significantly helped their trading partners without generating increased inflation at the time, were a more beneficial result of this summit meeting than the United States expansionist measures, which clearly reflected an underestimate of the inflationary threat in the United States. News media emphasis on the London summit meeting’s macro-economic decisions overshadowed what may have been its more lasting achievement — reviving the Multilateral Trade Negotiations, in which prospects for movement then seemed poor to zero. At London, the heads of Government committed themselves to achieve pro-

gress towards big reductions in tariff and non-tariff barriers. in agriculture as well as industry, before the end of the year. This commitment settled the question of whether the outcome of these negotiations should be small, as favoured by the French, or the deeper cuts in trade barriers and wider coverage proposed by President Carter Without this high-level

agreement on goals and timing the Multilateral Trade Negotiations, would almost certainly not have been concluded successfully, in the judgment of Robert Strauss, Mr Carter’s chief trade negotiator, and others close to them.’Without a trade agreement a reversion to protectionism. with consequent higher inflation and unemployment, might well have followed.