West’s leaders split on economic disarray

Press, 4 June 1982, Page 6

West’s leaders split on economic disarray

NZPA-Reuter Paris President Ronald Reagan, on the first stage of a' Ithday visit to Europe, arrived in Paris yesterday for the summit conference of leading industrial countries at Versailles this week-end.

Mr Reagan, who arrived at Orly airport aboard .Air Force One, was welcomed by the French Foreign Minister (Mr Claude Cheysson). The leaders of the world’s seven most advanced industrial nations will enter their meeting’ amid a deepening economic crisis that threatens to divide the Western alliance. Never since the series of economic summits began in Rambouillet, France, in 1975, have the economic prospects of the non-Communist world been so bleak: the Western industrialised nations have clearly not found a way to tame, the twin,, dragons of inflation and unemployment, and no new solution seems likely to emerge from the Versailles gathering. Inflation in the seven biggest Western economies has been averaging close to 10 per cent a year for more than a decade. In three of them — Italy, France and Canada — it has climbed well beyond that point. In all the seven except Japan and West Germany, unemployment also is close to 10, per cent of the total work-force, Britain holding an unenviable with 12.8 per cent ’of all workers unemployed. In the Great Depression in the 19305, prices everywhere fell as less and less cash was available to buy up the available. goods. The experience seemed to confirm a longheld economic theory that prices fall during economic stagnation and rise during a boom.

But the stagnation felt by the industrialised world since the 1970 s has disproved the old theory: nearly a decade of recession has failed to halt or even slow down inflation in many countries, leading economists to coin a new word for the problem —

stagflation. There is no agreement among the leaders meeting at Versailles on what to do about it. The average annual increase in industrial output of the seven nations will barely reach one-half of 1 per cent by the end of this year. In the United’ States projections forecast a 1.5 per

cent decline, and a drop of 0.5 per cent is predicted for Canada.

Only Japan, with 3.5 per cent and France, with 2 per cent, will increase significantly-, their industrial production this year, according) to the Organisation of Economic Co-operation and Development. In four of the seven countries — the United States, Japan, West Germany, and Britain — the fall in oil prices led to inflation falling more rapidly than expected, though without causing any economic upturn — another example of “stagflation.” The crisis led to budget problems for governments in the industrialised countries. Government spending was cut severely; partly to control inflation and partly because not enough cash was available. This led to still more unemployment. The crisis caused bitter recrimination over who and . what was responsible. The Europeans tended to blame the United States for failing: to control the high American interest rates, which drew European funds available for investment into the American economy. The Americans blamed Japan for flooding the Western world with cheap cars and other sophisticated products while closing their own market to Western products. The British blamed their European Common Market partners for insisting on high subsidies for their farm products.

The West Germans complained that they were being penalised for developing a more efficient industry and

greater productivity than their partners. They blamed conservative economic policies in Britain and the United States’ for helping tb‘ slow down the world economy.

The French whose Government is alone among the _seven to include Communist Ministers complained that the other governments allowed speculators to undermine .tneir . currency. The French franc has lost nearly 20 per cent since, the Socialist Government came to power a year ago.

Everyone blamed the explosion in oil prices orchestrated by the Organisation of Petroleum Exporting Countries since 1973. But when the O.P.E.C. price structure virtually collapsed amid a world oil glut, output in the industrial countries failed to pick up. O.P.E.C.’s f , politicallymotivated price’-rises during the 1973 Arab-Israeli war showed anew that the world economy could not be isolated from political and military confrontation in various parts of the world.

The Soviet invasion of Afghanistan, the military take-over in Poland and the Marxist-led insurrections in Central America raised new economic tensions among the Western powers: the United States, seeking the strongest possible response to what it regards as expansionism and subversion by the Soviet Union and its friends, complained that American’s allies had given only a lukewarm response.

The United States was particularly eager to cut down exports of advanced computer and other high technology products from Europe and Japan to the Soviet bloc, arguing that such exports promoted the Soviet capacity to make war.

The Europeans and Japanese argue that tightening trade barriers would erect yet another barrier to world economic recovery.

Many of these arguments are likely to be restated behind the closed doors to the Coronation Room in the chateau of Versailles, site of the summit plenary sessions. Few observers expect a miracle solution to emerge.

A cartoon in the satirical weekly “Canard Enchaine” (Chained Duck) showed Mr Reagan and the six other leaders limping into the chateau on crutches.