Leading Article: No quick fix in Munich

THE history of economic summits suggests that it would be wise to have low expectations of the current exercise in Munich. This is partly the result of a change in their nature since they were launched in 1975. Initially they were intimate meetings between heads of government at which - to some extent - it was possible to agree a common approach to economic policy-making. More recently they have become media circuses.

Helmut Schmidt, the former West German chancellor, said last week that much of the usefulness of the summits had been lost as a result. In an interview with the Suddeutsche Zeitung, he noted that politicians let themselves be seduced by the cameras. 'The actual value was in the personal talks,' he said. 'The American president had to listen if the French head of state complained . . . Nowadays there is too much talk for television but not for the ear of the president of the neighbouring country.'

There may well be some merit in the view that the greater the media razzmatazz surrounding an event, the less likely there is to be any substance in it. Certainly the two really important examples of international economic policy co-ordination in the Eighties, the Plaza and Louvre accords, were agreed by a tiny group of finance ministers meeting in secret. The Plaza Accord of 1985, which led to the decline of the overvalued dollar, was held in the Plaza Hotel in New York precisely to avoid any attention. By the time the world was told of the meeting, the deal had been done. Together with the Louvre Accord, which in 1987 helped to check the fall of the then much lower dollar, these two meetings re-established a measure of currency stability after the wild gyrations of the early Eighties.

There is, however, a further and more significant reason why economic summits have become less effective: national economic policies have become less effective. It is not yet fully understood why this change should have taken place, though it may well be partly a function of the rising power of the international financial markets vis-a-vis national governments.

All the seven summit countries have, in their different ways, made quite serious policy errors in recent years. Thus Germany has failed to take into account the full costs of reunification; the United States and Italy have failed to get their public finances under control; Japan and Britain permitted an unsustainable financial boom; and France was slow to correct the surge in public spending of the early Mitterrand years.

It is equally clear that any policy changes that are made must be credible to the financial markets. It has been evident for some time that large fiscal deficits have lost their power to stimulate economies: both the US and Britain are running huge deficits, yet recovery in the US is weak, and in the UK barely perceptible. Now, it seems, low interest rates are losing their effectiveness, too. One of the reasons why the very low US interest rates have failed to stimulate a sounder recovery is that they are offset by the markets: the last two cuts in short-term rates by the Federal Reserve have been met by a rise in long-term rates. This is not to say that governments are powerless. It is to point out that there is no magic wand that can be waved over Munich to bring prosperity in our time.