THE international coordination of monetary and exchange rate
policy through the G-7 has made an indispensable contribution to
the industrialized world. With the economic summit of the world's
seven leading industrial countries now underway in Munich, it is
worth considering how the summiteers' operating brief could be
expanded beyond its traditional monetary and exchange rate policy
In the 1990s, the great competition between the systems of East
and West has yielded to the pursuit of efficient production
locations and forward-looking policies on trade, the environment,
labor, energy, and competition. As each country seeks to optimize
its domestic economy, the world economy - producers and consumers
alike - stands to benefit.
Yet in the increasingly interdependent global economy, these
processes in individual countries cannot be truly optimal unless
they converge on an international level. It is apparent that
structural economic issues - issues that cannot be resolved through
central bank initiative alone - must now be addressed on a
multilateral basis in order to maintain stability. This need is
evident in the lack of clear economic direction that presently
characterizes most industrial economies. The G-7, I believe, could
serve as the vehicle that provides that direction.
Mustering the political will required to address the structural
problems, which are generally domestic in character, can often be
actively supported by multilateral action. Take, for example, the
European Community (EC), where convergence pressures force
governments to lower deficits, rein in inflation, and maintain
orderly bond markets. The G-7 mechanism can serve a similar
function on a broader scale.
One structural issue that would be on everybody's list is budget
deficits. In Germany, for instance, the present budget deficit can
only be addressed through the reduction of subsidies, the
privatization of public enterprises, and deregulation.
Understandably, all of these steps face stiff opposition from
certain domestic constituencies.
In the United States, deficit reduction measures such as defense
cuts and the scaling down of entitlement programs face similarly
stiff opposition. It is a fact of domestic politics on both sides
of the Atlantic that one or the other vested-interest group can
effectively bring progress to a standstill. Coordinated policy
initiatives among the G-7 on structural budget deficits may be the
only effective mechanism through which real progress can be