The London European Conference: Brown calls for special summit of G7 nations
He told the conference that the emergence of an interdependent 'global' economy required greater international economic co-operation.
There was still a clear tendency for the major industrial economies to coalesce into trading blocks: the European Community, the North American Free Trade Area, and Japan, Mr Brown said. Despite growing trading links, 'the failure to co-ordinate policy making at a global level has accelerated the defensive retreat into blocks,' he said.
Mr Brown said the European exchange rate mechanism was under pressure because of instabilities between the currencies of these blocks and the completion of the single market, which had sharpened trading imbalances.
'The logic of events is not to abandon the ERM but to work to the principle of greater integration within Europe, side by side with greater co-ordination beyond Europe that would diminish speculative pressures, reduce the transaction costs that penalise industry, commerce and the mobility of citizens and make for the stability necessary for growth and prosperity,' he said.
That must be accompanied by co-ordinated policies for expansion of jobs and growth in Europe. 'In other words the key is not ERM alone but ERM plus active government intervention to promote employment and industry.'
Mr Brown said while the Bundesbank's pledge not to raise German interest rates was welcome, it was insufficient. 'We will not make the progress we need without a recognition of the vital role that co-operation and co-ordination must play in a new international system.'
That economic co-operation might include a new concerted effort by a permanent administration under an expanded G7 to establish and maintain a new system of exchange rates between the three major currencies.
'Floating rates have enormously increased the opportunities for speculative profit,' Mr Brown said. 'In 1971, 90 per cent of foreign transactions were to cover trade and long-term investment and only 10 per cent to cover short-term capital flows. Today, only 5 per cent are to cover trade and long-term investment.'
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