G-7 Fails to Forge Plan for Global Growth : Economy: Group of Seven finance ministers agree on need for world stimulus. But none commits to specific steps.
The United States tried to collect the first international payoff of President Clinton’s recovery plan on Saturday, but a meeting of finance officials of the leading industrial powers ended without firm commitments that they would attack their own most pressing economic problems.
The group agreed on the common need to stimulate world economic growth. But Germany did not commit to specific steps to bring down its troublesome interest rates, and Japan gave no assurances it would speedily stimulate its own economy and reduce its huge trade surplus with the United States, officials said.
Britain, suffering through a recession that has lasted 40 months, lauded the Washington plan for tax increases, deficit reduction and job stimulus. But Norman Lamont, chancellor of the exchequer, would not endorse it as a model to be followed here.
After years of being berated by other governments for its ballooning budget deficits, the United States has suddenly found itself in the unaccustomed situation of dealing with its allies from a position of political and economic strength.
Treasury Secretary Lloyd Bentsen and a senior aide who accompanied him to London said before and after the meeting that despite the Administration’s new leverage, their goals for the London session did not include obtaining specific pledges.
“They were quite enthusiastic about what we have done,” Bentsen said afterward. “There’s no question that it fortifies our position.”
Declaring the get-acquainted meeting “productive” and one that began “to lay the basis for a stronger world economy,” Bentsen said at a news conference that the other finance ministers “recognized that while the United States is prepared to lead, we alone cannot guarantee prosperity for the world.”
“The policies we each pursue must reflect our own national interests,” he said after spending the morning and luncheon hour with his counterparts from Britain, Canada, France, Germany, Italy and Japan.
But, in an echo of a speech by Clinton on Friday that closely linked the U.S. recovery to similar progress around the globe, the new Treasury secretary added, “Increasingly, where economic growth is concerned, national interests and international imperatives coincide.”
It is a theme to which political leaders in each of the leading industrial democracies have subscribed for years. But they have found that trying to live by it can produce political dilemmas.
For the Clinton Administration, the outcome of meetings such as Saturday’s has a bearing on the domestic agenda. In a world increasingly dependent on global trade, the success of Clinton’s economic agenda will depend to some extent on international cooperation.
Lower interest rates in Germany can produce long-term growth that expands markets for U.S. products, as would Japan’s emergence from its economic downturn.
“The real key is Germany,” a U.S. Treasury official said. “They need to bring down their interest rates.” Lower interest rates would cut a German budget deficit fueled by the unexpectedly high cost of integrating the once-Communist East Germany into the western German economy, and would stop drawing capital from investors in other Western nations seeking the most favorable rates.
“The United States is so integrated into the world economy that it is difficult for us to sustain our growth if the rest of the world economy isn’t healthy,” said economist Alan Stoga of Kissinger Associates.
For all their talk of being in a better position, however, U.S. officials said they could not point to any specific evidence from the private meeting that it is paying off.
Were the Germans about to bring down interest rates?
“I think they were very careful on that one,” a senior Treasury official said.
Was the Japanese response satisfactory when they were pressed to stimulate their economy?
“I’d like to see more . . . stimulus,” the official said, adding that he does not expect results by the time the group meets next.
Nor, Bentsen said, was any consensus achieved on the way to assist the struggling Russian economy.
Alan Greenspan, chairman of the U.S. Federal Reserve Board, and the six other central bank governors joined the seven finance ministers against a backdrop of a still-weak global economic picture and an increasingly angry trade climate.
On Friday, the government reported that the U.S. economy grew at the very healthy pace of 4.8% in the last quarter of 1992. But Germany is in recession; the Japanese economy is flat; Britain, France and Italy are growing only slightly, and the Canadian economy, lagging behind the United States’, remains very weak.
Although such meetings as the conference of the Group of Seven finance ministers generally focus more on exchange rates, interest rates and levels of growth, the gatherings can help smooth the rocky road of international trade. The trade climate has become all the more uncertain in the past weeks as the Clinton Administration has sent strong signals of following a tougher policy line than did the Administration of former President George Bush.
In addition, the President’s attack on government subsidies to the four-nation European consortium that produces Airbus jetliners, which compete with U.S. passenger aircraft manufactured by Boeing Co. and McDonnell Douglas Corp., has made European officials anxious about whether he is about to embark on a protectionist course masked by free-trade rhetoric.
A senior Treasury official, however, said Clinton’s speech on international policy Friday had done “a lot to abate” European concerns. In his remarks, the President denounced protectionism, although he made clear that the United States would aggressively oppose trade barriers and unfair export subsidies by other nations.
Supporters of the G-7 also took heart from the early scheduling of Bentsen’s first meeting with the group because it signals Washington’s apparent interest in reinvigorating the G-7 process.
Bentsen, the Administration’s senior spokesman on economic matters, is known to foreign political leaders from his role as chairman of the Senate Finance Committee. He is seen as a political deal-maker to whom his foreign colleagues can relate, putting him more in the mold of two previously successful Treasury secretaries from Texas, John B. Connally and James A. Baker III--and setting him apart from his predecessor, Nicholas F. Brady, a refined figure of Wall Street lineage.
Connally and Baker, said Lawrence Kudlow, a Republican economic adviser and chief economist of Bear, Stearns & Co., “were regarded as key players. Brady was regarded as a gnat.”
Bentsen “can talk the language,” said Robert Hormats of the Goldman, Sachs firm and a former senior State Department and Treasury official in previous Republican and Democratic administrations. “He will be considered a player. He will fill a leadership vacuum in the international game.”