Participants Get Down to Nitty-Gritty at G-7 Summit : News analysis: They say they now understand the connection between prosperity at home and economic progress abroad.

Fourteen years ago, when Canada was getting ready to host its first Group of Seven summit and demonstrate that it was a proper member of the club of the world’s richest democracies, a senior government official preparing the agenda told a visitor that it was time the other summit participants understood the importance of international economics.

His message was a pointed reminder that the new U.S. President that year, Ronald Reagan, had come to office on a wave of domestic discontent fueled by a troubled economy at home. The international ramifications of economic problems elsewhere--or even the notion that what happened in Malaysia had an impact in Michigan--were not high on the Reagan agenda.

If there was concern in 1981 that the Administration did not understand the connection between prosperity at home and economic progress abroad, the summit that ended this weekend in Halifax made it clear the leaders of the wealthiest democracies understand that message now.

Even if they show shades of differences on what to do about global economic problems, they are united in their recognition that economic problems at home cannot be solved without tackling wider problems--be they currency flows, corruption, shadowy economic data or lack of investment capital--around the world.

The economic issues discussed this weekend were the nitty-gritty work of designing a mechanism to bail out economically foundering nations and such big-picture items as the massive currency flows that send billions of dollars, perhaps even $1 trillion, across international borders each day.

For example, the summit members agreed--some not as enthusiastically as the Clinton Administration--that the sort of financial meltdown that shattered international confidence in the Mexican economy can be avoided in other developing economies if international lenders demand regular reporting of economic developments such as government income and expenses, and foreign currency reserves.

But if such issues seem far removed from the questions of inflation, recession and jobs that have dominated past international economic summit conferences, there was little debate over their relevance in the evolving world of global capital flows, instantaneous communications and rocketing technological advances.

After all, while the overall agenda for the summit was set a year ago, it was just last winter that the Mexican economic crisis brought home its timeliness, and the impact such a crisis in one country can have in others.

Confidence in developing economies sagged globally last December, as a result of the devaluation of the peso. It took barely days for the impact of the Mexican crisis to be felt in U.S. border communities, where every-day goods were suddenly priced out of the range of Mexican shoppers.

What had been a U.S. trade surplus with Mexico turned within a month into a deficit, as the United States’ newest free trade partner was forced by the value of the comparatively powerful dollar to curtail purchases from factories deep in the American heartland.

With such developments firmly in mind, no one taking part in the Halifax summit needed to be convinced that the issues they were tackling had great importance at home--whether that home is in Montpelier, France or Montpelier, Vt.

It was the concerns over their domestic economies that united them in their goal of tackling an international agenda, and it was the need to make those at home understand this connection that fired them up in their private discussions.

Treasury Secretary Robert E. Rubin, speaking at lunch with a small group of reporters on Saturday as the summit agenda moved on to political issues, said he and his fellow finance ministers had remarked one day earlier that “there was a real turning inward” among the citizens of their nations--Britain, Canada, France, Germany, Italy, and Japan, along with the United States.

This problem was “very much on the minds” of the political leaders, Rubin said, and led to a discussion of living standards and conditions that hamper a nation’s ability to compete economically on the global stage--for example, education, wages and benefits, and technology.

The passing of the Cold War has crumbled the dried glue that held the summit partners together. When they first met in Rambouillet, France, in 1975, an oil crisis was ending, the post-World War II monetary system was tattered, central markets held sway, capital markets were modest and open trade was a far-off dream of only a few.

Now, their domestic economic concerns can rise to the surface, straining historic alliances. Even the U.S.-Japanese relationship, traditionally so close on political matters, has been threatened by the pressing fight over auto imports and the value of the yen, soaring so high that it has kept Japan’s export-based economy in the doldrums by making Japanese goods too expensive around the world.

“Trade tensions turn into a test of political will, Asia is booming and the Third World is seen as a competitive threat to traditional jobs in Western Europe and the United States,” said Robert Hormats, vice chairman of the Wall Street investment house Goldman Sachs International.

“We have a dramatically changed situation,” said Hormats, who in 1975, and for seven subsequent years, served as a government official preparing the path to the summit for the presidents and prime ministers.

What has not changed is the impact the international economy has on domestic concerns. But at least no one is now questioning whether this message has gotten through to the summit leaders.