G7 Meeting in Munich: World leaders build hope on shaky foundations: An upbeat communique cannot hide growing disunity, writes Peter Torday, Economics Correspondent

THE World Economic Summit may send a worrying message of faltering leadership to the peoples of the seven richest industrial states. In their final communique, issued yesterday, the leaders emphasised that their central task was to rebuild confidence, flagging everywhere in the industrial world. And they expressed their conviction that an early agreement on a new world trade regime, a crucial ingredient of renewed economic expansion, was 'within reach' before the end of the year.

Yet the events played out in Munich this week indicated the opposite. In large measure, the increasing failure of the Group of Seven to achieve anything of note at their annual summits led United States officials to admit that George Bush has questioned the usefulness of these gatherings.

In the absence of concrete measures - such as lower interest rates which would lift the confidence of investors, savers and consumers - the leaders admitted that a Gatt (General Agreement on Tariffs and Trade) accord would provide a 'significant contribution' to recovery. Yet divisions over economic policies are compounded by yet more divisions over the trade talks. These divisions, moreover, seem to have become entrenched over the years and the G7 is more often disunited than united.

To seasoned observers of the trade talks, which have dragged on for nearly six years, efforts at Munich to narrow differences between the US and the European Community on how far to reduce farm export subsidies ran up against immovable political realities yet again.

Although the arguments are complex and technical, in essence they boil down to the fact that America wants Europe to cease dumping so much of its food mountain on world markets at subsidised prices, because it deprives the powerful US farming community of markets abroad.

But President Francois Mitterrand of France seems fearful of angering his farmers ahead of the 20 September referendum on the Maastricht treaty. The summit communique thus contained strong language expressing the hope that an accord 'before the end of the year' - in other words, after the referendum - was within reach. But who is to say that Mr Mitterrand, unpopular at home, may then judge that the ruling Socialist Party risks losing the next spring's parliamentary elections? Unless, that is, he can extract an agreement from the US that the cuts in subsidies are modest, and the EC's income support policies for farmers are not tampered with.

Mr Bush's concerns are also electoral and equally deep. He cannot be seen to concede too much to the European farmers.

On economic policies, the US has campaigned for two years to press for lower European interest rates. It is not that most of Europe does not agree with Mr Bush. But the Community is living with the fact that the politically independent Bundesbank, which does not attend the summit, will not bring down its own rates until it is confident that the inflationary pressures of unification are receding.

Germany's rates are the benchmark below which other rates in Europe cannot sink without endangering currency stability inside the European exchange rate mechanism. As long as Europe is in agreement that the ERM is its main defence against inflation, high rates will persist until the Bundesbank moves - a development which is unlikely until late this year.

Strong arguments over economic policies were nevertheless avoided. So the communique endorsed 'sustainable non-inflationary growth' - the Anglo-German view of the world - but also contained a pledge to promote 'jobs and growth' - the emphasis preferred by the US and France.

Meanwhile, the Europeans are fed up with economic lectures from the US, where the federal budget has been in substantial deficit for well over a decade. The US deficit is thought to be one of the main reasons the US recovery is so lacklustre. So there was a nod towards the prospect of lower rates if excessive budget deficits are curbed.

Perhaps because of the futility of past confrontations, these divisions were played out with much less force than those over world trade in Munich. But the result was an anodyne communique. Without a trade accord, the Seven admitted there is little they can do, either directly to stimulate their economies or indirectly to lift confidence.

The recovery, they said, 'would not be taken for granted'. But in sharp contrast to those distant days when summits set the tone for subsequent co-ordination of monetary policies, the Munich summit acknowledged that each country faced different situations, requiring varied responses.

That is another way of underlining the Group's diminishing effectiveness. Perhaps, as the US believes, a less formal summit, with less intensive preparations, might produce a more useful outcome. But on economic questions, if not political ones, perhaps the divide between a more unified Europe and a less confident America is now too great for that.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
sportWWE latest including Sting vs Triple H, Brock Lesnar vs Roman Reigns and The Undertaker vs Bray Wyatt
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
Have you tried new the Independent Digital Edition apps?
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Junior Web Designer - Client Liaison

£6 per hour: Recruitment Genius: This is an exciting opportunity to join a gro...

Recruitment Genius: Service Delivery Manager

Negotiable: Recruitment Genius: A Service Delivery Manager is required to join...

Recruitment Genius: Massage Therapist / Sports Therapist

£12000 - £24000 per annum: Recruitment Genius: A opportunity has arisen for a ...

Ashdown Group: Practice Accountant - Bournemouth - £38,000

£32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor