OBJECTIVES EXPECTED AT DENVER

Economic:	The G7 affirms central economic goal of increasing sustainable growth within the context of a global economy.
Macro:	The G7 re-confirms its commitment to price stability and fiscal consolidation.
Micro:	The G7 re-confirms the commitment to labour market reform as outlined in the 1994 OECD Job Strategy. The G7 will gather to discuss the topic in more detail at a special Summit on labour markets in Se

OVERVIEW

The economy is not expected to play a major part in Denver and most of the attention is likely to be focused on other issues, especially Russia. We think that the economy is likely to receive less attention than its significance warrants.

This is even though the performance of the economy is likely to be very on the minds of the G7 leaders, especially the Europeans and Japan. Not necessarily in order of priority, this may reflect the following factors:

First: The presence of Russia will tilt the meeting towards the more political.

Second: the US economy is performing well and is therefore not a pre-occupation with a second term American President Clinton who is now more likely to look to domains other than the domestic economy to leave his mark.

Third:, the G7 has been subjected to some major macro and micro policy initiatives that are well en route to bearing fruit but limit the current scope for further action.

Fourth: the general weakness in the G7 economy and the election of left of new leaders in three of the G7 now requires the previous consensus on policy direction to be reconfirmed or reconstructed. This is especially the case with the election of J

MISSION STATEMENT

The most important economic objective at Denver will be for the new G7 team to reach some agreement on the general direction of policy. In light of his election campaign and position in Amsterdam,, it will be particularly important to get Jospin on line.

The first is the recognition that, although macroeconomic policy does have an important influence, the long term rate of economic growth has more to do with 'potential' and supply side factors that are more appropriately handled by microeconomic po

The second is a continued leaning against the view that problems can be solved by discretionary (i.e. one off) government intervention. The alternative is the view that economic policy should instead provide the appropriate environment in which ind

Globalization: Preliminary statements and research work being published by international organizations points to the increasing awareness of the globalization of the economy, especially with respect to trade and capital markets. We therefor

Objective 1: We are looking for a clear indication of consensus on the role of government in setting the appropriate environment for sustainable growth in a global economy.

MACRO POLICY

Because of the impact on the economy in Europe, this is the area most likely to be contentious and the area most in need of the confirmation or re-building of consensus.

Objective 2: We are looking for a clear indication of a consensus on the role of government on macro policy which does NOT call for interventionist policy.

The area of macro- inflation and fiscal policy - is the area where least is to be expected from Denver. This is primarily because the goals of dis-inflation and fiscal consolidation have been largely achieved (price stability) or well en route (deficit r

A key tell-tale and negative signal is if labour markets are discussed under the macro rather than the micro section.

Inflation

The G7 has been very successful in reducing inflation. In 1996, it averaged 2.2-2.3 for the thrid consecutive year. However, the US and the UK economies have strengthened and the average output gap in the G7 has started to close. Holding down inflation w

Objective 3: We expect the G7 at Denver to re-confirm its commitment to price stability.

Fiscal

The G7 has made considerable progress towards reducing fiscal deficits. However, structural deficits do remain. The primary concern is that the G7 will fail to continue the pressure on deficit reduction and be drawn into stimulative measures. This is e

Objective 4: We expect the G7 at Denver to re-confirm its Lyons commitment to deficit consolidation.

Exchange rates

The Yen-USD has been coming under considerable attention and G7 will be under pressure to moderate exchange rate. It is important that while G7 support operational measures to smooth volatility, that it does not promote notions of G7 intervention for rat

Objective 5: Preferably no mention at all, but if Denver does mention exchange rates, it should do so to confirm non-interventionist policy stance.

MICRO

With respect to economic policy, the main source of activity in Denver is expected to be focused on the macro area. We expect to see continued measures directed to promoting potential growth.

Labour market

The labour market remains the key area of contention. A key objective is for Denver to re-confirm the view that business not government creates jobs and that this requires government to set the appropariate labour market. A key issue mentioned in objecti

Objective 6: We expect Denver to re-confirm the Lyons commitment to labour market reform as outlined in the 1994 OECD Job Strategy. Denver is likely to invite the G7 to an Employment summit in September.

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