The World's Woes Will Have To Wait

For 18 years, economic summits have created a flurry of early-summer diplomacy. Sherpas jet around the world to hammer out agreements for their presidents and prime ministers to announce with great fanfare. This year is no different, except that a key element is missing: the deals. When leaders of seven major industrial nations gather in Munich on July 6-8, they'll find no significant pacts addressing the world's economic and strategic problems.

The problems are there, of course. The world economy is barely growing. Russia and the other republics of the former Soviet Union need money fast. The bloody splintering of Yugoslavia mocks Europe's post-cold-war security arrangements. And global trade talks are bogged down. But although the Group of Seven nations dominate the world as never before, their leaders are preoccupied by political woes at home. Perhaps the best they can hope for is a splashy deal on Russian aid and an agreement to keep the feuds quiet.

A do-little meeting will be especially painful for George Bush, who wants to remind voters that foreign-policy savvy can bring home domestic bacon. Unfortunately, last year's hero of Desert Storm has been replaced by the just-say-no Bush of the Earth Summit in Rio de Janeiro. "At this G-7, Bush will be less a leader and more a loner," says Francois Heisbourg, director of London's International Institute for Strategic Studies.

BITTER PILL. The fragmentation is clearest on the central issue of global growth. For months, Treasury Secretary Nicholas F. Brady has hectored German and Japanese leaders to boost their anemic economies (chart). Brady even lined up a novel summit of Latin American finance ministers on June 24-25 to drive home his point: The G-7 has to grow faster to help the world's poor nations.

But neither Germany nor Japan is likely to swallow Brady's prescriptions. The hard-line Bundesbank is keeping short-term rates high--around 9.6%--to offset the inflationary effect of subsidies to the former East Germany. German Chancellor Helmut Kohl has pledged cuts in government spending, but they seem a long way off.

Japanese Prime Minister Kiichi Miyazawa will be more agreeable--at least on the surface. Scheduled to arrive in Washington on June 30 for a pre-summit visit, Miyazawa will promise to spend some of Japan's budget surplus to boost its economy and trim its growing trade surplus. But the pledge will more than likely be vague, and the powerful Finance Ministry will fight to cut the package to less than half the $62 billion requested by Washington.

Growth is a matter for mere bickering, though, compared with the likelihood of an ugly row over trade. Two years after the G-7 leaders pledged their personal attention to finishing the Uruguay Round of trade-liberalization talks, the world still is far from an agreement. The key logjam: disputes between the U.S. and the European Community over farm subsidies. "The Americans are hung up with the idea of agriculture, and it's absurd," complains an adviser to French President Francois Mitterrand.

REACTOR RIFT. Only aid to Russia offers hope of major progress in time for Munich. Led by Bush and Kohl, the G-7 pledged $18 billion in economic aid and a $6 billion ruble stabilization fund in April. The Russians won't see most of that until President Boris Yeltsin and the International Monetary Fund come to terms on an economic reform plan. But a good-faith effort by Russia, including unification of its various ruble rates into a single floating rate by July 1, could secure it $1 billion in time for the economic summit.

The best chance for a deal, though, is on a plan to bring Russia's dangerous nuclear power plants under control. Europeans living in the shadow of Chernobyl want to pay $700 million to begin shutting the worst reactors, while the U.S. and Japan argue for cheaper measures, such as training and stricter safety rules. While the debate has been stalled for weeks, the pressure of the summit should focus negotiators' minds.

Prospects for success are so slight the summiteers might well wish they could stay home. "Their domestic economic problems have reached the point where progress at the summit would be difficult," says Ellen L. Frost, senior fellow at the Institute for International Economics, a Washington think tank. Tending to the home fires may lack the glamour of international summitry. But domestic issues are where the G-7 must focus now.

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