Clinton pins faith on G7

CARL JUNG wrote that a marriage seldom or never develops without crises, and the same can be said of the Group of Seven co-ordination process. As ministers from the industrialised countries gather this week in Tokyo, they are the first to agree that they would not be meeting were it not for the precarious status of President Boris Yeltsin and Russia's hyperinflation. The world has Bill Clinton to thank for pressing the US, Germany, Japan, Britain, France, Canada and Italy to mount a rescue. The big question, of course, is whether they will be any more successful this time than they were the last.

This seems the appropriate moment to ask the overarching question first posed by the Canadian economist Wendy Dobson: are we witnessing the requiem or the resurrection of G7 economic co-ordination?

The entire process has fallen into disrepute in recent years, as summit after summit of the seven heads of government has resulted in little more than endless photo-opportunities, sound bites and final communiques that either waffle or fall short of implementation. A growing chorus of the influential now sings of the death of global economic coordination.

President Clinton, however, is refusing to write the obituary. How else to launch a new initiative for Russia, without agreeing to pay for all of it? How else to actually get the rescue job done expeditiously, without involving the world's other key players? The co- ordinated action of the leading industrialised countries in responding to Iraq's aggression in the Gulf shows that they can bond in a crisis once they agree on the objectives. At this point in his presidency, Mr Clinton sees that he needs the G7. It is the only forum that seems capable of managing the burden sharing in the post-Cold War era.

That having been said, the G7's record of late has been dismal. The dollars 24bn Russian aid programme engineered last April by George Bush was a fiasco. Other serious problems that the G7 is supposed to address have been virtually ignored: three years of stagnation in the world economy, which has caused industrial countries to suffer from each other's weaknesses; the reappearance of another record Japanese trade surplus, which is mushrooming toward dollars 150bn; new, potentially destabilising currency misalignments, as illustrated by the renewed overvaluation of the yen by an estimated 25 per cent, and continued disruption in the European Monetary System; big fiscal deficits in the US and Germany; increased trade tensions, as seen in the deadlocked Uruguay Round talks. And now the threat of political and economic chaos in Russia and the other former Soviet republics.

Small wonder that the new US administration seeks to exert leadership and has turned to the G7 as the appropriate forum. It is a welcome first step by Mr Clinton, but only that. The danger is that expectations, particularly as regards Russian aid, will override reality.

Like a marriage, the G7 is only as strong as its partners. The leadership that produced the Plaza Accord to devalue the dollar in 1985, that launched the Uruguay Round of trade talks in 1986 and the Louvre Accord on exchange rates in 1987, has been noticeably lacking. Countries have turned inward to concentrate on their domestic concerns as economies have soured.

There is no counterpart to the former Giscard d'Estaing-Schmidt alliance between France and Germany, which often produced consensus in Europe and spurred action elsewhere. Japan, almost always a silent partner at G7 summits, is likely to be even more silent as the host country this year. The abrupt replacement of Michio Watanabe as foreign minister, due to ill health, was a blow to the chances for creative G7 solutions. His successor, Kabun Muto, is inexperienced in foreign policy and does not have the same power and confidence to force the bureaucracy to respond. Since the host sets the agenda in the loosely structured G7 world and drafts the final communique, this could be a big setback.

Finally, countries continue to look to America for leadership on global initiatives, but the US can no longer pay. This has produced a new set of tensions, as illustrated last week by the remarks of Gunter Rexrodt, Germany's economics minister. Commenting on the Russian aid proposals, he said that Germany would help in any way possible, but not with any more cash up front. He also looked with some scepticism on the Clinton-Yeltsin proposal to establish an overall co-ordinator for aid in Russia. Fine to co-ordinate, said Mr Rexrodt, but not if this results in some 'showbiz' effort, headed by a big star and supported by a cast of hundreds, which eventually comes to naught.

There are also questions related to the new US structure. The White House has seized control of the G7 process, which can be viewed as a more positive endorsement. Robert Fauvre, on the staff of Robert Rubin's economic coordination council, has been named the chief sherpa, who is supported by sous sherpas at the Treasury and State departments. This may lead to cleaner, more innovative US proposals, but it could also lead to hopeless infighting. Mr Clinton's role in the process will be the ultimate key.

If there is a final word to be said on G7 co-ordination, it is that the process is still new. The current system was not actually launched until 1982 when, at the Versailles summit, government leaders directed the Group of Five treasury ministers to begin multilateral surveillance of each other's domestic policies. The G5 became the G7, with the inclusion of Canada and Italy, at the Tokyo summit in 1986.

As a 'steering committee' capable of tackling the world's most pressing problems, it is the only forum that actually works. The danger is that like its 1960s predecessor, the Group of 10, it will become too big and inconclusive.