Few Solutions Seen at Summit in Toronto

When Ronald Reagan attended his first summit meeting of the seven major industrial democracies, in Ottawa in 1981, the newly elected American President was greeted as dangerously inexperienced in the world of diplomacy--and as something of a radical.

Reagan’s aggressive free-market ideology clashed sharply with the emotionally charged socialism of France’s new president, Francois Mitterrand. His tight-money economic policies angered West Germany’s traditionalist chancellor, Helmut Schmidt. And his hard-line East-West stance--and refusal to consider huge economic concessions for Third World countries--frustrated Canada’s prime minister, Pierre Elliott Trudeau.

Reagan was greeted then “with a certain skepticism, and perhaps even some derision,” Treasury Secretary James A. Baker III conceded to reporters last week. Henry R. Nau, a former National Security Council specialist who helped manage the U.S. strategy at Ottawa, recalls that the 1981 Ottawa summit ended in “almost complete disarray” among the leaders.

Conservative Shift

Beginning Sunday, Reagan will be in Toronto attending his final economic summit, but this time he will not be regarded as a maverick.

Since the Ottawa session, governments around the world have become decidedly more conservative. Although Mitterrand still espouses a Socialist philosophy, France altered course dramatically rightward after his economic program ended in disaster in 1982. European countries are starting to strip away government regulations that impede their economies.

And Reagan himself has moved toward the center on some issues: relations with the Soviet Union and stabilizing the value of the dollar.

Once willing to let exchange rates fluctuate freely without government intervention, Reagan told TV interviewers Friday night that “what we have right now is stability, and I think that is what is important.”

What’s more, with Reagan now clearly a lame duck, none of the seven participants--the leaders of the United States, Japan, West Germany, Britain, France, Italy and Canada--seems willing to muster the political will needed to hammer out any serious economic initiatives on such knotty issues as currency values and the prospect of inflation.

As a result, while the world still faces gnawing economic difficulties--some the result of Reagan’s own policies--the seven have decided to put aside any serious problem-solving efforts and turn the Toronto summit into a tribute to the Reagan legacy and their own “successes” in managing the world economy.

Breathing Space

“It’s a kind of valedictory,” Secretary of State George P. Shultz told reporters.

Recent robust economic indicators--particularly this week’s sharply improved U.S. trade deficit figure--have given the seven leaders some breathing space. They have even set aside a special session, ostensibly to talk about “future-oriented problems,” to express confidence in the way current issues are being handled.

“The main intent of the leaders will be to leave the impression that they’re working cooperatively and there’s no disagreement among them,” said Harald B. Malmgren, a Washington international economics consultant. “If they can do that, they’ll be satisfied.”

Former NSC strategist Nau, now a professor at George Washington University, agrees.

“I would be surprised if they come up with any strong direction for the future,” he said. “This is really going to be a yawner in terms of any real substance.”

But there are ample opportunities for friction, according to such observers:

-- The United States and its economic allies disagree sharply over how fast their trade negotiators in Geneva should go in overhauling global agricultural policies. Washington wants badly to prod the bargainers to hammer out by early December a specific timetable and agenda for the agriculture talks, and for broader trade negotiations now under way as well. The Europeans and Japanese remain adamantly opposed to any such commitment.

Pre-Summit Clash

The two sides clashed bitterly in a prelude to the summit in Paris last month, and U.S. officials fear that the Europeans may want to backslide even from their Paris position.

“The feeling in the European Community is that we are not talking the same language (as the United States) and we are not following the same path,” Willy de Clercq, the Common Market’s top trade official, said in an interview this week. “The summit is not the place where we (should) discuss agriculture,” he added testily.

-- Reagan Administration strategists worry that the Europeans will use the new thaw in U.S.-Soviet relations to lower their political and military guard and rush into stronger economic ties with the Eastern Bloc. The clamor to open trade and commerce with the East has reached fever pitch in Europe.

Technically, Reagan is scheduled simply to brief the summit participants on the details of his recent trip to Moscow. But senior Administration policy-makers also hope to persuade the Europeans to take it easy.

-- Washington could end up in another squabble with France over economic policies affecting the Third World. Mitterrand, fresh from a lengthy election campaign, has written a letter to the six other leaders proposing that they either eliminate a third of the debt of those nations defined as the world’s poorest, mainly in sub-Saharan Africa, or renegotiate the debts so that these nations have much longer to pay them off at lower rates. Whether the others agreed or not, Mitterrand wrote, France would go ahead and offer the 33% cut to its poorest debtors, almost all in Africa. West Germany forgave all such debts years ago.

Expectations Feared

But the United States, fearful that the plan will raise expectations among Latin American debtors, wants to make the French proposal merely part of a “menu of options” that creditor governments can follow as they wish. Washington will almost surely get its way, but the summit byplay could become nasty.

No matter what happens on these issues, the seven summit participants are not expected to go home totally empty-handed.

The Toronto session is expected to approve another modest step toward institutionalizing the economic policy coordination procedures that have been developed over the past two years by Treasury Secretary Baker.

Specifically, the group will give its blessing to a Baker proposal to employ two new indexes of commodity prices as an early warning of renewed inflation. At Baker’s insistence, to please conservatives in Congress, both versions of the index will include gold prices as a component.

The seven leaders are also expected to reaffirm last December’s pledge by their countries’ finance ministers to continue trying to stabilize currency exchange rates.

Tax Code Efforts

The summit leaders as a group will urge all the major industrial countries individually to speed their efforts to overhaul their tax codes and regulatory policies to cut out rules that may be impeding economic growth. European governments in particular want the summit’s encouragement to help them sell the changes to their own citizens.

And, in a move aimed at helping Vice President George Bush in his Republican presidential campaign, the United States will push a proposal calling for the seven leaders to pledge to cooperate in stemming “the flow of drug profits through the world’s financial institutions”--in other words, to help put a stop to money laundering by drug dealers.

But the effort will be mainly symbolic, designed to “lay the groundwork” for future efforts, U.S. officials say. Administration strategists concede that details of the anti-drug plan and a companion proposal, for the seven to develop a multinational economic aid package for the Philippines and refugees from Afghanistan, will not be completed soon.

Finally, the United States will seek to have the allies issue a broad “positive” statement reinforcing Reagan’s assessment of U.S.-Soviet relations after the Moscow summit. As they have in previous years, the seven also may issue another denunciation of international terrorism.

No New Monetary Talks

However, the leaders will put aside the more difficult medium-term issues that some analysts believe the summit should be exploring. Partly to avoid reviving jitters in the financial markets, Baker already has foreclosed further discussion on how to overhaul the international monetary system and keep currencies in line. The markets would only view any such effort “as overly ambitious--and unsustainable,” Baker asserted.

And the seven are not expected to worry much in public about the prospect of renewed inflation, although there are plenty of signs that the price spiral may be speeding up again and that the seven ought to adjust their economic policies.

That omission has some analysts worried. Former NSC staffer Nau conceded that staging a “happy days” summit may be “the right move in terms of the psychology of the market, and it may even work for a time.” But he warned that “it’s only dealing with the symptoms. These people are riding a tiger.”

This year’s summit is the 14th such session in the series, which began with a meeting of leaders of five of the seven current summit countries--all but Italy and Canada--at Rambouillet, a small town outside Paris, in 1975. Since then, the annual conference has rotated among the participant countries in a seven-year cycle. Next year’s meeting will be in France, again with a new U.S. Administration and, almost certainly, a more urgent set of problems and less time for self-congratulation.

For now, however, the Toronto summit is being billed as a “celebration,” and neither the outgoing U.S. President nor his six colleagues has the stomach for much more.