MAY 9 1998       The Straits Times


G-8 losing its focus, direction



REMEMBER the "Group of Seven Leading Economic Powers" (G-7) -- the US, Japan, Germany, France, Britain, Italy and Canada? Well, now you can forget them, for now the world's most exclusive club is called the G-8, with Russia joining as a full member at the summit to be held in Birmingham in Britain next weekend. You may also wish to forget the G-8, for it is far from obvious how relevant the group is to the running of the modern international system.

Asians, in particular, might find it odd that Russia, and not China is welcomed to the club, and that despite the economic problems in Asia, the region still has only one member in the top eight. But as unfair as the under-representation of Asia undoubtedly is, the real problem for the G-8 is not so much in its trans-Atlantic character, as in its failure to focus on the issues that matter and can be usefully tackled at such a high level.

The Birmingham summit comes nearly 25 years after the first G-5 summit in France in 1975 and the earlier "library summits" of the big five in the library of the White House. In those early days when the Cold War raged and the global economy was beginning its surge towards greater globalisation, it was understood that Western leaders needed to meet at the highest level.

The tacit rules for entry into the group was a major economy and a democratic political system. Canada and Italy were democracies, although their economic credentials were less than overwhelming. Latest entrant Russia is barely a democracy and certainly not a major economy. The entry of Russia is both a sign of the trans-Atlantic focus of the Group and a symbol of its loss of direction. To be sure, there are good reasons to welcome Russia into the Atlantic community and anchor its growing democratic and capitalist system. But managing Russia's integration into the West is far less urgent, for example, than dealing with the looming presence of Europe's single currency.

The Euro has far more potential to make an immediate impact on the prosperity of the leading economies and the international economy as a whole. Imagine a world where the Euro is a major reserve currency virtually on a par with the US dollar. Then imagine another Asian currency crisis and it immediately becomes obvious that the US will cease to be treated as the sole superpower.

Europeans will need to coordinate their policies ever more tightly and effectively because in times of crises they will be expected to have solutions to other people's problems. Now is the time to explore how trans-Atlantic relations will be coordinated on these matters and what are likely to be the strategic implications. The Birmingham summiteers will no doubt mention the Euro, but the formal agenda is concerned with other, far less important or far less malleable issues.

Combating crime is put high on the agenda -- a worthy objective but more what the Americans would call "apple pie". Reducing unemployment is also on the agenda, but with rapid growth being sustained in North America and EU states doing well, the issue seems far less pressing than it did two years ago.

The summit will also be concerned with reducing poverty in the developing world, and especially in enhancing modernisation in Africa. All very worthy, but hardly pressing when there are far more worrying uncertainties about Pacific-Asia. Perhaps it is the irrational exuberance in the stockmarkets on both sides of the Atlantic that leads to complacency about Asia's woes.

Nor is there much urgency in the calls for a revision in the ways in which the international currency markets function when there has been little damage to Atlantic economies. A powerful US dollar and Euro create complacency about the global financial system.

But even if a large dose of complacency in the Atlantic world is justified, it is mystifying that the G-8 powers seem unconcerned with starting a new round of trade liberalisation in the World Trade Organisation. It used to be the G-7 that played such a vital role in fine-tuning the global economy and highlighting major initiatives for the future. Such vision is absent at the moment, and is replaced by the lesser ambition of integrating a fading Russia into a mostly peaceful Europe.

This myopia among the major powers has some obvious explanations. Japan is in a state of virtual suspended animation because of its failed efforts to re-start its economy. More importantly, the Europeans are displaying worrying signs of disarray as the EU economies grow more integrated. The fiasco surrounding the appointment of the President of the European Central Bank suggests that the core Franco-German alliance on EU matters has major structural weaknesses. EU states need to learn to be more, not less coordinated when it comes to economic policy.

Pending the protracted process of building greater European cohesion, the main burden of leadership falls on the US, but here too there are major weaknesses. This is supposed to be the unipolar-power able to order international affairs, but its president is unable to persuade its Congress to approve funds for the United Nations or the International Monetary Fund.

This is a country that seeks to bully its allies through threats of trade sanctions concerning trade with rogue states and risks undermining the open world trade order. The US is indispensable to lead the Western powers, but it is an unfocused power with unsustained attention spans. Most observers can see the need for a strong US lead on the Middle East peace process, but instead we see shilly-shallying because of complex domestic pressure groups.

Given such weakness in Western leadership, it is not surprising that the G-8 will not focus on the important issues. For the time being, the failure is not tragic, if only because the world economy is doing very nicely, there are no major wars and no one else is offering competing leadership.

We still live in a world described unimaginatively as "the post-Cold War world" because we have yet to figure out what challenges we really face. But the risk must be that as we get used to weak leaders and unmodernised institutions, we will be unsuited to meeting the crises to come.

 [ The writer is director of studies at the International Institute for Strategic Studies in London. He contributed this article to The Straits Times. ]


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