No French Connection
By GEORGE J. CHURCH
Ronald Reagan had hoped to go to Bitburg buoyed by an important success in economic diplomacy. Instead, he departed from Bonn for the wreath-laying ceremony smarting from a fresh setback. His 2 1/2 days of discussions in the West German capital with the leaders of six other major industrial powers were always polite and often were even marked by effusive mutual compliments; no one wanted to add a public squabble about economics to the uproar over Bitburg. But there was no disguising the fact that French President Francois Mitterrand blocked Reagan from getting what he most wanted from the summit, the eleventh in a series devoted primarily to economic affairs. Said Mitterrand defiantly: "I am proud to be somewhat alone in Bonn." Reagan was described by a close aide as "disappointed."
The prime American goal, extensively advertised in advance, was to win agreement on starting a new round of talks in early 1986 aimed at liberalizing world trade (prematurely christened the Reagan Round by some admirers of the President). One aim would be to provide the world economy . with a tonic, in the form of speeded-up exchange of goods and services, that it might need to shake off the effects of a slowdown in U.S. industrial expansion. A more political, and more pressing, purpose was to give Free Trader Reagan ammunition to use against protectionists at home who want to limit imports. A quick start on tearing down trade barriers would enable the President to hold out hope that the U.S. could reduce its debilitating trade deficit by increasing exports instead.
Chancellor Helmut Kohl of West Germany, the summit host, and Prime Ministers Margaret Thatcher of Britain, Brian Mulroney of Canada, Bettino Craxi of Italy and Yasuhiro Nakasone of Japan were willing to accommodate Reagan. But Mitterrand, who appeared to relish playing France's traditional role of odd man out at economic summits, adamantly refused to set an early--or any--date for trade negotiations. He voiced varied objections: that the talks had to be carefully prepared; that they ought to be linked to a monetary-reform conference, about which the U.S. is dubious; most of all, that trade talks might hatch a deal on agricultural products that would hurt French farmers.
Shortly before the last formal summit session on Saturday morning, Kohl brought Reagan and Mitterrand together for an unscheduled private talk. The U.S. President could not budge his French colleague, and the final summit communique noted only that "most" participants wanted trade talks in early 1986. In context, that bland wording was an unprecedented admission of lack of unanimity. Mitterrand then appeared at a press conference to proclaim, "I have my responsibilities toward France, toward French farm producers and toward Europe. I am defending a just cause."
The French holdout left in doubt not only the date but the form and scope of any world-trade negotiations. It is still possible that a conference involving the 90 nations belonging to the General Agreement on Tariffs and Trade will be called; Mitterrand agreed that France would participate in planning for one, but laid down a string of conditions that France's partners would find difficult to meet. U.S. Secretary of State George Shultz stated U.S. eagerness to talk trade liberalization with any groups of nations, or even individual countries, that are willing to deal if a GATT conference could not be convened. But such piecemeal negotiations would lack the impact of a worldwide conference and would risk shredding the multilateral trading system. Bit-by- bit talks would also force a test of loyalties on European nations. Paris lost no time reminding them that there are questions about the kind of bargains that could be struck without the consent of France, a linchpin of the ten-nation European Community.
The impasse over trade talks prevented any searching discussion of what had been expected to be another major topic at the summit: how to keep an American economic slowdown from triggering world recession. That will require faster growth in other countries, and some gingerly efforts are under way to promote it, but there was little analysis in Bonn of whether those efforts are adequate. At the formal sessions and in the final communique, the heads of government merely described the policies they are already following and pledged themselves to such unexceptionable goals as fighting inflation and creating jobs. Such cascades of generalities are hardly unusual at economic summits; nonetheless, the lack of deeper discussion amounted to a missed opportunity.
When heads of government gather, of course they are going to talk politics, and these discussions have long since been institutionalized at economic summits; they take place at lunch and dinner and during bilateral meetings between the participants. Reagan fared reasonably well during these talks. The leaders produced a statement applauding the "positive proposals" of the U.S. in the Geneva arms-control talks with the Soviet Union. They also pledged to study new ways to crack down on international traffic in narcotics. That topic arose unexpectedly at dinner Thursday night when Thatcher politely asked the American President about the progress of Nancy Reagan's antidrug campaign; the question touched off an animated discussion in which all seven heads of government joined.
By design, there was no official statement about Reagan's Strategic Defense Initiative, better known as Star Wars; the U.S. made clear it would not seek any endorsement. But the subject dominated Reagan's bilateral talks with the other leaders. The President stressed the potential advantage to other countries of participating in the research for the missile-defense program, which he said could have important nonmilitary applications. Canada's Mulroney and Japan's Nakasone were politely noncommittal; others were interested, but in some cases skeptical, about just what contributions the U.S. wanted. Said Italy's Craxi: "We don't want to make just the carpets and - the screws for the spaceships." Kohl gave SDI a personal endorsement; though the British government is known to be worried about the strategic implications of SDI, Thatcher indicated a desire to share in the research effort. Said she: "Our inventiveness is excellent." The dissenter was (who else?) Mitterrand. He refused to have anything to do with SDI research.
Another subject about which nothing was said in public but a lot in private was the U.S. embargo on trade with Nicaragua that was announced when Reagan arrived in Bonn last Wednesday (see WORLD). The other leaders were annoyed by both the policy and its timing. Said a West German official: "There will always be the impression that there was approval or a secret understanding with us. There wasn't."
Overall, the results of the summit seemed at best meager for a long-prepared meeting of world leaders. But that is becoming the way with these annual sessions. Reagan and his senior aides regarded the first two that the President attended as important tests of his ability to cut a respectable figure on the world stage, but have been let down by the last three. Says one adviser bluntly: "It's getting to be a bore."
The summits have changed greatly since the leaders of six industrial democracies gathered at the Chateau de Rambouillet outside Paris in 1975 (Canada was added the next year). They began as general and relatively informal private chats but quickly, and probably inevitably, took on most of the trappings of full-scale international conferences: months of preparatory meetings among planners known as sherpas (after the guides who take climbers to the summits of the Himalayas), set-speech expositions of national policies, large delegations attending each head of government.
The summits have become media events. The West German government accredited 3,858 print and TV journalists from 53 nations to last week's summit; the White House provided them with a 32-page schedule covering virtually every step to be taken by President Reagan and the White House press corps during the first four days in Bonn. NBC Correspondent Irving R. Levine clambered onto a restaurant table so cameras could present a clear shot of him delivering his report with the Rhine in the background. The reporters raced among briefings often conducted simultaneously in five languages and scrambled for every scrap of news or reasonable facsimile thereof. Sample: TV interviewers surrounded Nakasone after his bilateral talk with Reagan and asked whether he favored more trade concessions. Nakasone's studiedly uninformative reply: "The discussion is on this matter."
Certain themes have cropped up during all eleven meetings. At every summit, the French have pressed to restrain currency fluctuations, and everybody has implored Japan to open its markets to more imports. The essential aim of summits has been to try to coordinate the domestic policies of the world's major industrial nations so that one nation's targets for trade, inflation or growth are not in conflict with another's. This effort has had mixed and occasionally unforeseen results, most notably in Bonn in 1978, when the seven tried to coordinate their growth targets in a "locomotive" strategy led by Germany and Japan. The locomotive crashed into the 1979-80 oil crisis, and at later summits all seven switched their emphasis to fighting inflation even at the cost of expansion.
Many experts believe the principal value of the summits has been to force heads of government, especially the American President, to brief themselves on details of trade, currency and interest-rate problems that they might otherwise neglect and to make an effort to gauge what impact their economic policies have on other countries. West German Chancellor Kohl's predecessor, Helmut Schmidt, in an often quoted reflection on the eight summits he attended, said that "they did not bring about much, but what they avoided was of enormous importance." At every summit, for example, the seven leaders renew what amounts to a ritual vow to uphold free trade and shun any turn toward protectionism. Those vows are never perfectly kept; every country has in fact taken protectionist action. But barriers to trade would probably have been raised much higher had it not been for the leaders' repeated public commitments.
Inevitably, the U.S., boasting an output of goods and services about equal to that of the other six powers combined, determines the tone and much of the agenda. Its line has switched markedly with the identity of the man occupying the Oval Office. Jimmy Carter sought fairly close coordination of national policies amounting almost to a master plan for the world economy. Reagan during his first term preached reliance on the free market to promote global prosperity, and devoted much energy to denying that gargantuan U.S. budget deficits were damaging the world economy by keeping interest rates high and forcing up the value of the dollar. To some of the other summiteers, he seemed to be following a go-it-alone, nationalist line.
This time, however, the Reagan team arrived at the summit sounding a markedly different rhetorical tone. "We need help," proclaimed Secretary of the Treasury James Baker in an internationally televised session with foreign reporters the week before. His point: the U.S. economy can no longer be the locomotive pulling the rest of the world behind it to vigorous growth. Others would phrase the problem more bluntly: some deft cooperative footwork may be needed to prevent an American slowdown from setting off a world recession.
The background is that the economy of the non-Communist industrial world for the past two years has been exhibiting a strangely lopsided pattern. While Americans have enjoyed rapid expansion in output, income and job creation, most other countries have reached only the point the U.S. attained at the end of the 1981-82 recession. They have wrestled down their once towering inflation rates to relatively moderate and tolerable figures--roughly 6% last year in the European Community, 3.8% in Canada--mostly by adopting brutally restrictive government spending and money-supply policies. But they have paid a bitter cost in unemployment rates running above 11% in both the E.C. and Canada, vs. 7.2% in the U.S. (Japan, with inflation below 2% and unemployment less than 3%, is as usual an exception.) Though all the major countries have experienced some production growth, none came close to matching the 6.8% rise the U.S. notched in 1984--not even Japan, which recorded 5.8%. Rates in the other summit countries ranged from 1.4% in Britain to 4.7% in Canada.
America's boom has exerted profound but contradictory effects on this pattern. The U.S. has been responsible for much of whatever growth has occurred in the other industrial countries because it has been buying much more from Europe, Canada and especially Japan than it sells to them. Imports have been pulled into the U.S. partly by the fast pace of the American economy, partly by the soaring value of the dollar, which lowers the price of foreign goods in the U.S. and raises the cost of American products to overseas customers. At the same time, many economists contend, foreign investors have been pouring money into the U.S., depriving their own countries of capital needed for job-creating investments. American budget deficits play an ambiguous role in this process. By keeping U.S. interest rates high, they attract foreign capital, which raises the value of the dollar, making imports cheap and saddling the U.S. with a balance of trade deficit that topped $100 billion last year for the first time.
This circular process may be coming to an end. Production growth in the U.S., held back no small degree by the huge trade deficit, dwindled to a mere 1.3% in the first quarter of 1985; by some projections, growth could fall below 3% for all this year. At the same time, the President is urging adoption of a budget that at last begins the attack on deficits so long urged by his summit partners (though his aides insist he is doing so for domestic reasons rather than because of summit nagging). Together, these developments could blow a hole in the world economy. They might result in a cutback in U.S. imports outweighing any gain other nations might derive from a lessened flow of capital to the U.S., which in turn could lead to less growth and more unemployment all round.
The U.S. came to the summit pressing two ideas for averting these dire prospects. One was that the time has come for nations that have brought inflation under control, primarily Britain, West Germany and Japan, to do more to pep up their domestic economies. That would "pick up the slack" created in the world economy by slower American growth, as Treasury Secretary Baker put it, and make them less dependent on exports to the U.S. Reaganauts vehemently deny any intention to preach freehanded government spending, which would indeed be wildly out of character for the President. They urge instead a combination of tax cuts, lessened government economic regulation, and incentives to domestic investment--in brief, a kind of transatlantic and transpacific Reaganomics--although the Reaganauts do not use that word, which they consider derogatory.
The others were wary. Kohl is promoting some German tax cuts next year, but five German economic institutes on the eve of the summit judged them too little too late. Fundamentally, the British, West Germans and Japanese are all waiting to see how much Reagan is really able to slash the U.S. budget deficit. Their fear is that if deficits stay high and an overvalued dollar continues to drain capital out of their countries, anything they do to stimulate their home economies will prompt not growth in output and jobs but a resurgence of the inflation they have brought down with so much pain.
The other and more pressing U.S. goal was to set a date for a new world- trade conference. The reasoning: in times of economic uncertainty, protectionists in most countries invariably call for limits on imports in a misguided effort to save jobs, and there are disquieting signs that this is beginning to happen; the U.S. Congress already resounds with angry calls for tough curbs on imports from Japan. The Reaganauts fear that these demands may prove irresistible and lead to a contraction in trade that would gravely damage the global economy, unless they and the other leaders can promise a new effort to draft rules for a liberalized and more equitable international exchange of goods and services.
But a few days before the summit convened, Mitterrand appeared on prime-time TV in France to voice a firm non. He declared: "I say that it is not possible to accept this negotiation on trade affairs if on the other hand there is a refusal to engage in negotiations in areas as important as money." In other words, no trade talks without some moves toward the grand monetary conference Mitterrand proposed two years ago.
This position, a French delegate commented dryly, reflected more than "a Cartesian obsession with parallelism," a reference to the rigorous logic of Philosopher Rene Descartes, which is revered in French schools. Mitterrand's demand appeared to go beyond the inveterate French desire to demonstrate independence from Washington. In Mitterrand's view--and, he asserted, "I am not alone"--little progress toward world economic stability is likely until something is done to impose a new monetary order and damp down wild fluctuations in currency values, like the rise in the dollar since 1980. The U.S. arrived in Bonn willing to continue monetary discussions already under way in a forum called the Group of Ten and open to the idea of a full-fledged monetary conference--some day, maybe. But Americans think the system of allowing currencies to trade at any price buyers are willing to pay has on the whole worked reasonably well and doubt that any return to the pre-1973 system of fixed exchange rates is either possible or desirable. In any case, U.S. officials judge trade problems to be far more urgent.
Thus the summit opened in an atmosphere of more than usual uncertainty, principally over how far Mitterrand was prepared to push his position. The answer turned out to be: far enough to force some tense overnight discussions Friday among sherpas trying to work out a compromise. Though Mitterrand proposed a monetary conference starting within a year, he somewhat surprisingly did not press the point. But at the summit-opening dinner Thursday night, and through the working sessions Friday, Mitterrand began stressing a more self-interested French objection to new trade talks. He feared that in the interest of liberalizing trade in farm products, such talks would force a revision of the European Community's common agricultural policy that would cause French farmers to lose income.
Reagan, whose relations with the stiffly formal Mitterrand are even less comfortable than those between previous American and French Presidents, tried to break the tension with a things-are-tough-all-over joke. Seems that an American farmer, asked what he would do with $1 million he had won in a lottery, replied, "Guess I'll continue farming until I run out of the million." Silence. Thatcher took Mitterrand aside to tell him that agriculture in her view would not be the top priority in a trade conference; she would give prominence to liberalizing trade in services (banking, insurance, airlines) and harmonizing the different and often unduly rigorous national standards that various countries set for imported products. Mitterrand was not reassured.
Preoccupation with trade and German-American distraction over the uproar attending Reagan's visit to the Bitburg cemetery limited the general economic discussions Friday to a ho-hum review, during which everyone shied away from criticism. Reagan spoke of his tax-simplification plans. Mitterrand and Italy's Craxi talked about anti-inflation programs. Nakasone described Japan's trade policy as "freedom in principle and restrictions as exceptions." Though the other six surely would not agree, no one commented. "What we avoided was finger pointing," said one European official.
The main business Friday night and Saturday, however, was the futile effort to persuade Mitterrand to accept a trade conference in early 1986. Canada's Mulroney drafted a set of proposals for what such a conference would discuss; it was intended to assure the French President that agriculture would not dominate the talks. The sherpas, meeting all night, worked out five or six formulations to the same effect. Mitterrand agreed to communique language that made no mention of any link between trade and monetary conferences, but nothing could get him to set a date for the trade discussions. The French President hinted to reporters that Reagan's success in lining up the other leaders for early talks only "made me more steadfast" in refusing. Finally, there was nothing to do but issue a communique for once allowing disagreement among the summiteers.
That is not necessarily a crushing setback for the global economy, nor does it indicate a sudden decline in Reagan's persuasive powers. Mitterrand probably was at least partly playing to the potent French farm vote in preparation for parliamentary elections next year, and it would be useless for any non-French politician to try to talk him out of that. All the same, the impasse raises a disquieting question about economic summits. One of the original reasons for holding the meetings was supposed to be that the problems of coordinating an interdependent global economy were too important to be left to technicians, who tended to get hung up on minutiae and needed guidance from political chiefs who presumably could take a broader view. But at Bonn, where the political leaders could not even set a date for trade talks, it did not quite work out that way.
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With reporting by Lawrence Malkin/Bonn and Barrett Seaman with Reagan