Financial Post G7 Record

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Financial Post, Weekly edition, Thu 15 Jun 95, page 49

Keywords: International finance Politicians Strife Halifax

MEASURING UP THE G-7: Test of the Halifax summit will be how far it finds a resonance in countries not represented at the conference table.

Peter Norman Financial Times of London

It is usually the case that the significance of international meetings only becomes clear long after the event.

This will be especially true of this year's Group of Seven summit meeting in Halifax.

For the test of the Halifax summit, which starts today, will be how far it finds a resonance in countries which will not be represented around the conference table, and which, only a few years ago, would have been far from the minds of G7 leaders.

Although the Summit communiques on the economic and political issues facing the world will be phrased to convey a aura of power and confidence, the G7 nations and their leaders are a much diminished bunch.

A quick glance at the U.S., Japan, Germany, France, Britain, Italy and Canada shows that most of the leaders are deeply unpopular with their own electorates. That is particularly true of British Prime Minister John Major. In the U.S., power lies with Newt Gingrich, the Republican House speaker, rather than with President Bill Clinton who will be at the summit.

Although both a head of state and government and therefore endowed with more power than most of his fellow leaders, Jacques Chirac, the newly elected president of France, only achieved his present pre-eminence after coming second to a socialist in the first round of the French presidential elections. The Japanese leader, Tomiichi Murayama, the head of a fragile coalition, has been having to fend off calls for his resignation this month.

In Italy, the position of Lamberto Dini, heading a government of technocrats, was looking less secure this week after the victory of former prime minister Silvio Berlusconi, in a weekend referendum on his television interests.

Helmut Kohl, Germany's chancellor, is the longest serving summiteer and Europe's most powerful political figure. But he has to look over his shoulder and bear in mind the chronic weakness of his small Free Democrat coalition partner. Even the summit host, Jean Chretien, has seen some of the lustre fade from his dominant political position at home. Last week, Chretien's Liberal party, which 18 months ago virtually wiped out the Conservatives as a political force at the federal level, was unexpectedly trounced by newly resurgent Conservatives in elections in Ontario.

Weakness at home has been matched by a lack of appetite for international policy co-operation. The G7, which in the late 1980s began to fancy itself as a directorate, giving a lead to the global economy, has been trailing behind events in the approach to Halifax.

The U.S. and Japan, the two biggest G7 economies, will come to the summit embroiled in a bitter trade dispute over cars that could undermine the authority of the newly created World Trade Organization before the WTO has been able to get on its feet. It is a reflection of the G7's current status that diplomats have no serious expectations of a solution in Halifax and would regard it as a success if this vexing dispute is kept off the agenda.

Not suprisingly, in an age of massive, free flowing capital movements, the G7 has been unable to prevent this year's large potentially damaging depreciation of the US$ against the Japanese yen and mark.

A bout of concerted central bank intervention to prop up the U.S. currency at the end of last month has probably been sufficient to neutralize any heavy selling ahead of the meeting. At most, the summit will agree that the way to greater currency stability lies through sound economic and financial policies at home.

It is probably to the good that the G7 will reject quick fix measures as a response to the divergence of their currencies. In advance of the meeting, G7 officials have gone out of their way to squash suggestions that the leaders will endorse interventionist programs, such as the transactions tax to limit currency speculation proposed by James Tobin, the Nobel prize winning economist. On the other hand, many economists are concerned that the leaders appear unruffled by signs of a slowdown in the growth of their economies at a time when unemployment and budget deficits remain high.

Then there is Bosnia. It would be wholly in keeping with the tradition of past G7 summits if as yet unforeseen twists to the Bosnian crisis were to dominate the two days of talks.

On paper at least the Halifax meeting should be a good place to discuss the crisis. All five members of the Bosnian contact group - the U.S., Russia, France, Britain and Germany - will be in Halifax once Boris Yeltsin, the Russian president, has joined the talks at a working dinner on Friday night. It will also be useful that Italy, which is geographically close to the crisis area, and Canada, which has its nationals among UN peace keepers in Bosnia, are present.

But it is unclear how far the G7 will be in a position to give leadership following last week's U.S. House of Representatives vote for a unilateral lifting of the arms embargo against Bosnia.

A papering over of cracks is a more probable scenario with the U.S. having to concentrate its efforts on reassuring its G7 partners that it will live up to its global commitments.

But this bleak appraisal of the G7 and their place in the world does not mean that Halifax need be a non-event. On one important issue - the review of international institutions initiated at last year's G7 summit in Naples - relative weakness could turn out to be a virtue.

A more conciliatory G7, which recognizes that it can no longer aspire to setting a global agenda on its own, may stand a better chance of winning support among other nations for improvements in the operation of such bodies as the International Monetary Fund and World Bank and reform of the United Nations and its many agencies.

Fifty years ago, a handful of countries led by the U.S., Britain and the Soviet Union, could dictate the shape and prescribe the institutions of the post-Second World War world. This week, at their 21st annual summit, the big industrialized democracies will acknowledge that they can only proceed and prosper in partnership with a host of others.

Although the leaked draft is likely to be extensively rewritten, if only to prove to the outside world that G7 communiques are not prepared entirely in advance, it is unlikely to reject the view that ''the world economy has changed beyond all recognition over the last 50 years.''

Meanwhile, there should therefore be enough common ground on institutional reform among the G7 countries for Chretien to declare the summit a success. If so, the problem for the rest of us will be that it will take at least two years to find out whether he is right.

This information is provided by the Financial Post.
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Revised: June 3, 1995

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