IMPACT OF THE SUMMIT : Bush Is Bringing Home Little From G-7 Summit

When President Bush returns home from this week’s summit of the world’s leading economic nations, he will have a hard time pointing to any measures taken here that will help the faltering American economy.

A combination of circumstances--the failure by the United States to achieve a breakthrough in long-stalled global trade talks, the reluctance of the Germans to join Washington in any bold, coordinated anti-recessionary program and the Bush Administration’s hesitation to make Japan’s ballooning trade surplus an important agenda item--has left Bush holding a mostly empty bag.

Most of what the leaders did here will cost America money, not bring it in. Most notable in this category is aid to the former Soviet Union and Eastern Europe.

Bush’s troubles here at the 18th annual summit of the Group of Seven industrial powers--the United States, Great Britain, Japan, Germany, France, Italy and Canada--underscore once more just how intractable international economic negotiations can be because they almost always threaten special interests back home.

And the urgency with which the talks were treated by U.S. officials also shows how Washington understands better than ever before the ways in which global economic issues increasingly affect consumers and their jobs in the United States.

While trying their best to put a positive spin on Munich’s accomplishments, it was clear that Bush and his aides had hoped for more to take to the American voters. The White House, U.S. and European officials said Tuesday, tried especially hard to work out a compromise on agricultural subsidies with the French to remove a key stumbling block to a global trade pact.

Bush had apparently hoped that a dramatic announcement on a new market-opening global trade agreement--after years of negotiating deadlock--would provide proof that Bush’s foreign policy talents make a difference to the pocketbooks of American consumers. The Administration has argued that potential benefits from a global trade agreement could be immense. World trade could rise by as much as $100 billion a year, generating jobs in the United States and worldwide.

But the French, facing domestic political resistance from their powerful farmers at a politically sensitive time when they are preparing for a September referendum on a contentious European economic and political union treaty, refused to cut a deal.

President Bush, when asked Tuesday whether he was taking anything home from the summit, said, “About what we thought when we came.” But Secretary of State James A. Baker III acknowledged later that he had hoped for a breakthrough on trade in Munich.

“Let me tell you something, I really am disappointed,” Baker told reporters. “And I’m frankly of the view that we are much much closer now to the prospect of a (trade) agreement than we were as recently as five weeks ago. But I do believe it’s going to have to wait a little bit longer.”

In the wake of its failure on trade, the Administration found itself with an agenda at Munich that seemed bereft of alternative initiatives that might stimulate the moribund American economy. Confronted with an unemployment rate that surged to 7.8% in June and the growing threat from a “triple-dip” recession, Bush needs economic help before November from wherever he can get it. Last week, Federal Reserve Board Chairman Alan Greenspan did his part, slashing U.S. interest rates to their lowest levels since 1963.

A coordinated, worldwide cut in interest rates would be even better for Bush, since that would stimulate global economic demand, buoying U.S. exports and generating American jobs.

But that is unlikely to be announced in the economic declaration of the Munich summit, which will be issued today. Instead, the G-7 is likely to limit itself to a pronouncement that world interest rates are too high--without offering initiatives to bring them down.

When pressed, Administration officials are growing testy about Munich’s failures. One senior official, asked to list what economic benefits the Munich summit will provide to American consumers, could point only to the indirect help to the U.S. economy that might flow from economic policy announcements by the Japanese and Germans made in the weeks before the summit.

“The fact that they were done in the days leading up to the summit instead of at the summit, I hope, doesn’t disqualify them from being important in your mind,” the Administration official said tersely.

But those earlier announcements by the Japanese and Germans were only modest proposals aimed largely to fend off U.S. pressure for further action.

Under Administration pressure, Japan said it planned to boost its domestic government spending enough to ensure that its economy could sustain a 3.5% annual growth rate, up from a projected rate of 2% this year. While some economists question whether faster Japanese growth would really benefit the United States, the Administration believes that it would ultimately stimulate U.S. exports.

Meanwhile, Germany, also under U.S. prodding, announced a new government budget that reduces overall spending to bring its soaring deficits under control. The Administration hopes that will persuade Germany’s independent central bank, the Bundesbank, to bring down its high interest rates.

The Bundesbank, now so powerful that its policies dominate the European banking system, has been keeping interest rates high to ensure that the German government’s massive spending on reunification with the former East Germany doesn’t lead to spiraling prices. The German discount rate now stands at 8%, compared to 3% in the United States.

But the budget measures announced by the Germans and the Japanese before the summit are far too modest to have much impact on interest rates or on export growth, economists believe. And none of the major powers have announced any further economic initiatives, or backed up those earlier proposals with new specifics, since arriving at Munich.

“Everything that has to be done is too painful,” noted Gary Hufbauer, an economist at the Washington-based Institute for International Economics. “This is big politics, read-my-lips kind of stuff, in every country involved. So what you are seeing is weak-kneed rhetoric from a group of rather weak leaders, when we need some drastic changes in economic policies around the world.”

With so little progress to point to, Treasury Secretary Nicholas F. Brady has been left to stress rhetoric over specifics. He argues that it is significant that, unlike at last year’s summit in London, the major powers now at least agree on the need to fight recession.

“We’ve been pushing for a recognition of the fact that growth is extraordinarily important,” Brady told reporters here. “Now, that is almost unanimous among the leading countries. And so the turning of people’s minds to this problem is the significant fact.”

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