Newspaper article The Christian Science Monitor

Group of 7 Countries Look Inward Industrialized Nations Fail to Generate Global Growth

Newspaper article The Christian Science Monitor

Group of 7 Countries Look Inward Industrialized Nations Fail to Generate Global Growth

Article excerpt

MOUNTING domestic pressures in the world's richest countries have impinged on their ability to fulfill their collectively assumed policy: generating global economic growth.

During meetings in Washington this week, the Group of Seven (G-7) leading industrial nations - the United States, Britain, Canada, France, Germany, Italy, and Japan - are more absorbed in their own deficiencies than in tackling tough problems.

Germany's burgeoning budget deficits, Japan's financial downturn, and a sluggish US economic recovery have left these three major powers - the so-called troika of the G-7 - looking inward. Coordinated efforts, such as shoring up Russia's reforms and forging ahead with a world trade agreement, have been greatly compromised.

"G-7 growth this year will be significantly below potential and inadequate to reduce high levels of unemployment in many countries," says Undersecretary of the US Treasury for International Affairs David Mulford. That scenario jeopardizes the successful "transition of Eastern Europe and the {former Soviet republics} to market economies," he says, referring to the G-7's most formidable challenge.

Mr. Mulford focuses on Germany, the dominant economy on the European continent. Its huge bills for rebuilding eastern Germany have led to a large fiscal deficit. That, coupled with the Bundesbank's (Germany's central bank) tight monetary policy, hinders growth in former Communist countries now banking on Western European capital and markets. He faults Germany, for "causing high interest rates, slow growth, and contributing to unemployment" in Europe.

While German Finance Minister Theo Waigel claims that his country's deficit represents just 3 to 3.5 percent of gross national product, Mulford counters that including Bonn's big borrowing, the deficit registers at 6 percent of GNP.

German officials have repeatedly accused the US of holding up global economic growth with unmanageable deficits. But while Germany's rate climbs, "and prospects for its early relief are very uncertain," America's deficit has peaked, asserts Mulford. The US is not "holding up global growth," he insists. Washington's costs for bailing out failed US savings and loans "are widely behind us ... discretionary spending is curbed ... and revenues should begin to pick up" as the economy improves.

Japan, once seemingly unstoppable, is an international economic locomotive now running out of steam. Tokyo's 225-member Nikkei stock index has fallen dramatically during recent months, real estate values have plunged, and overexposed banks are tightening credit. Japanese investors, known for their cautious approach, have already taken an even more conservative position in finance outside the Asian region. …

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