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Don't expect big new global initiatives when the leaders of the world's major industrial economies meet at the end of next week in Denver. With the possible exception of Britain's wonder-boy Tony Blair, who may try to make a splash at his first summit, the leaders are too preoccupied with domestic political problems.
Prime Minister Jean Chretien has just come off a shaky election victory. U.S. President Bill Clinton is still having a tough time on various issues with Congress -- and with the Paula Jones case, too. The French and German leaders are struggling with uncertainties over European monetary union and a single currency. Italy is, well, Italy. Japan has deep troubles with its financial institutions.
Russia's Boris Yeltsin may be glad to get away for a while from his internal conflicts for what's now called the Summit of the Eight rather than Group of Seven. For the first time he'll be a full participant, even though Russia doesn't rank as a major industrial economy in the way the G7 countries do.
However, Yeltsin will get full-court treatment for agreeing to NATO enlargement. There'll be a push to help Russia integrate more quickly into the global economy and attract still-sputtering business investment from the West.
``But this summit will be a real disappointment,'' predicts John Kirton, director of the University of Toronto's G8 Research Group. Kirton has led teams of analysts to every G7 gathering since 1988. This one will produce more pageantry than substance, he says, and only please the Russians for a short time before they come back demanding more. ``The basic problem is that to the extent that Clinton has any game plan, he has essentially surrendered it to the Russians,'' Kirton says.
For instance, only a short session has been planned on global economic issues. This concerns summiteers such as Kirton, who thinks it reflects too much equanimity about the world economy's outlook, especially on the part of the host U.S., whose economy is doing splendidly. While gross domestic product growth for some big economies, such as Italy, is pretty flat, none is in recession. Collectively, G7 growth is estimated at 2.7% this year and 2.5% the next. Inflation will likely stay low.
However, as Kirton points out, there are plenty of potential flashpoints and the world's major economies are increasingly interdependent.
There's a potential crisis in Japan over the integrity of its financial system. There's a crisis waiting to happen in Russia. Its international debt is mounting rapidly, but it can't even collect its taxes properly. Unwisely, some want to relax budget-austerity conditions set by groups such as the International Monetary Fund in return for Western assistance.
Europe's plan for monetary union and a single European currency is unraveling. ``There's a need for some frank talk [at Denver] on that,'' Kirton says, because it raises the very real prospect of a period of European currency instability that could drag in the rest of us.
At the summit Canada hosted in Halifax in 1995, solid groundwork was laid to avert international financial crises by reforming key international watchdog and other financial institutions in which governments are members. The aim was to make them more effective in support of world economic stability. There were also commitments to improve early warning systems for looming crises.
There now is a bigger pool of funds to draw on in case of emergencies. There are tighter surveillance procedures, including more timely and detailed reporting of key data so international financial markets work more efficiently. There are more frequent talks between governments and such institutions as the IMF on the impact of policy developments. But how candid these are is still questionable.
While most countries are keen on tougher surveillance for others, they are often less keen on it for themselves. In a U.S. briefing this week on summit issues, Robert Hormats, vice-chairman of Goldman Sachs (International), warned that in some major emerging economies there still isn't strong enough surveillance and supervision of financial institutions. Failures could have consequences that spread.
The reforms started in Halifax need a further push along at Denver. Prime Minister Chretien should make this a priority of his agenda.
Another risk to world economic stability is what Hormats calls the challenge of demographics. An aging population will put huge pressure on costs of social programs, such as pensions. These must be more fully funded and benefits reduced for those not in need. That also deserves discussion at Denver, so political leaders understand the urgency of dealing with the problem now rather than later.
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