G7 Summit: The summiteers come down to earth: Cautious hope replaces euphoria - Warnings of cuts in welfare spending - US President at odds with Tokyo

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The Independent Online
LEADERS of the Group of Seven leading industrial states yesterday replaced euphoria with cautious hope on the outlook for world trade and warned that welfare budgets in almost all their countries will have to be curbed.

The three-day world economic summit concluded with hints that French opposition to deep cuts in farm-export subsidies could be bought off by the European Community's structural fund.

The German suggestion came as President Francois Mitterrand of France persisted in warning that his country would not engage in 'unilateral sacrifice' for the sake of a successful outcome on world trade.

President Boris Yeltsin said Russia's meeting with the Seven had been useful. It had yielded a dollars 3bn ( pounds 2bn) fund to assist privatisation, while the IMF had recently approved a dollars 1.5bn loan and the World Bank a dollars 610m credit to assist the oil industry.

Both John Major and Helmut Kohl, the German Chancellor, warned that spiralling social costs like pensions and benefits, due to ageing population, growing demands on public health care and high unemployment, would force most of the Seven to cut welfare budgets.

In a final declaration the G7 refrained from hailing the provisional tariff-cutting deal on industrial goods as a breakthrough - as their officials did earlier this week. Instead, it was 'significant progress made towards a large market-access package'. While the leaders said that the deal was a 'major step' towards immediate resumption of the Uruguay Round, they recognised that substantial hurdles lay in the way of a final accord: 'Nothing is agreed until everything is agreed.'

On French insistence, the communique omitted a statement in the draft declaration describing the agreement as bringing within reach the most

far-reaching market-access deal in history.

Flagging a key obstacle in the revived General Agreement on Tariffs and Trade (Gatt) talks, Mr Mitter rand said that in last year's US-EC Blair House accords on curbing farm- export subsidies, the European Commission had exceeded its negotiating mandate. 'Decisions of the EC rest on the politicians, not on the technicians,' he said. But Mr Mitterrand acknowledged that his country was trying to work with Britain and Germany to prevent the trade talks from collapsing.

Preparing for a hard sell at home, President Bill Clinton struck a more sanguine note: 'We were able to get this huge breakthrough on the trade manufactured goods with these other nations, which could lead to a huge number of new jobs for America.'

Mr Kohl underscored the importance of a Gatt deal to the Third World. 'It is essential for developing countries who especially need open markets and export opportunities which is much better than ultimately giving them financial hand-outs,' he said. He spoke as Mr Mitterrand announced a Franco-Japanese initiative to study the support of Third World commodity prices, complaining that the rest of the Group 'were unwilling to associate themselves with it'.

To brighten the prospects for jobs and growth, the summiteers stressed the need for a series of structural reforms, emphasising especially the need for lower social costs. Mr Major said most countries had very substantial budget deficits which needed to be cut. He added: 'All of us need to keep social costs within the bounds that we can afford.'

This theme was echoed by Mr Kohl while the G7 called for more flexible labour markets and announced a 'job summit' of high-level officials this autumn to explore the causes of structural unemployment, and ways to cut social costs. Some finance ministers privately welcomed the suggestion as a way of deflecting domestic public opprobrium on to the G7 as a whole.

'It's a good thing if it is not us finance ministers who are seen as the bad guys. It is better if we are seen to attack social costs as a group,' said Theo Waigel, the German Finance Minister.

The G7 also underscored other key measures intended to lift their economies out of low growth, including:

Cutting deficits to ensure a rapid reduction in interest rates in Europe, and lower long-term rates in the US.

An undertaking by Japan to strengthen domestic demand, sucking in foreign imports and boosting growth elsewhere.

In a gesture to the Third World, the G7 agreed to support renewal of a soft- loan IMF facility, debate deeper debt relief for the world's poorest nations and back next year's Cairo conference on population and development.