German rates key to revival, says G7: Industrial states pledge to deepen co-operation

THE GROUP of Seven leading industrial countries agreed yesterday that the revival of worldwide economic growth depended on further cuts in German interest rates and a promised boost to Japanese demand.

After five hours of largely harmonious talks, the G7 finance ministers said that in Europe, 'room for a further decline in interest rates that should make a substantial contribution to growth' would emerge as budget deficits, especially in Germany, were further curtailed. But labour costs and inflation would also have to remain subdued. British officials made clear that no further cuts in UK rates were envisaged since the current level was clearly compatible with a sustainable recovery.

The finance ministers also said that the implementation of budget deficit cuts in the US and Canada would sustain the North American recovery. In Japan, meanwhile, an upturn coupled with a decline in the country's huge trade surplus depended upon boosting demand with a substantial expansion of public spending.

The ministers also revealed that they will report to the Tokyo world economic summit in July on key measures needed to sustain a recovery over the next several years. These include reforms to make labour markets, particularly in Europe, more flexible.

The ministers also urged a successful conclusion to world trade talks, deep cuts in healthcare costs, tackling the economic impact of ageing populations, measures to lift savings and investment and greater public spending on education, training and infrastructure.

They also implicitly warned against a further sharp rise in the yen and said they would cooperate closely to combat 'undesirable' volatility on the currency markets.

The ministers also urged Russia to press ahead with far-reaching measures to end hyperinflation.