G7 Summit: Hazards remain in quest for growth

THE Group of Seven leading industrial states will today offer their recipe for a revival of growth and a halt to rising unemployment in the West. They will call for renewed budget-deficit cuts in Europe and the United States, which they hope will bring interest-rate reductions and resulting benefits for growth and jobs.

However, a draft of the economic declaration to be issued today expresses concern about the economic outlook. Budget-deficit reduction measures in Europe should 'ensure that the conditions for reduction in interest rates are created', it says. This statement is aimed at most EC states, but especially Germany and Britain. While the Bundesbank has rewarded public-spending cuts in Germany with a cut in rates, Kenneth Clarke, the Chancellor of the Exchequer, has warned of higher taxes but stayed coy on whether this would allow him to cut rates.

In North America 'policy will continue to be implemented that will ensure substantial and steady reduction in fiscal deficits', suggesting that President Clinton may ultimately want to follow up on the dollars 500bn (pounds 335bn) of deficit cuts in the next four years, now almost completing its passage through Congress.

The draft prods Japan to stimulate its economy further with fiscal measures and lower rates, to help suck in imports and boost demand overseas. 'Japan will, as necessary, implement fiscal and monetary measures to ensure strong domestic demand-led growth,' the draft says of the only G7 country with a budget surplus. The controversial issue of Japan's current-account surplus, set to rise from dollars 139bn this year to dollars 150bn in 1994, will be taken up by Mr Clinton in post-summit talks with Kiichi Miyazawa, the Japanese Prime Minister, tonight.

Mr Clinton has this week pressed again for a US-Japanese framework trade agreement, loosely based on targets for US imports into specific Japanese market sectors. This approach has so far been rejected by Japan, and top European officials have warned that a 'managed trade' accord between the two nations could set back this week's far-reaching agreement to relaunch the Uruguay Round of Gatt (General Agreement on Tariffs and Trade) negotiations.

The draft praises the tariff-cutting market-access accord between the trade ministers of the leading industrial states as 'a great step to lead the way' to early resumption of world trade talks. While important issues are still to be resolved, 'we have within our reach the largest, most far-reaching market-access agrement in history'. It urges the other 107 Gatt members, who resume talks in Geneva on Monday, to open their markets in a comparable way. This should lift hopes for an overall accord by year's end.

While more open markets could improve the G7 economies, the leaders make clear that weak growth and unemployment cannot be solved by large-scale fiscal measures or interest-rate cuts alone. Mr Clinton has proposed a meeting of labour and finance ministers this autumn to explore possible solutions to the jobless crisis.

For now, the summiteers have singled out structural problems as a major obstacle to job growth and expanding economies. They called for greater labour market efficiency - flexible wages, easier mobility of workers, and an end to inflexible working practices - and improved education and training.

A report by G7 finance ministers stressed that budget deficits were not just a product of recession, but of increasingly inflexible economies. 'You need 3 per cent growth across the G7 to stop unemployment getting worse,' said Mr Clarke. Structural joblessness, brought about by inflexible labour markets and regulation of business, was present 'both in the good phases of the economic cycle and the bad'.

The finance ministers emphasised the need to ease the financial pressures of ageing populations and arrest rapidly rising health-care costs. Other structural reforms which the leaders want include cuts in subsidies of all kinds and, like the finance ministers, the need to address the financial pressures of an ageing population.

Rising demand for health care meant overall outlays had to be controlled, and both these issues could be addressed with a higher 'quality' of public spending, through more efficient public sectors.

On the Third World, the G7 leaders say they will strengthen their support for African countries, but John Major has made little headway here on securing deeper debt relief for the most indebted nations of sub-Saharan Africa. The draft devotes several paragraphs to the needs of the Third World, but little discussion has taken place.