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Frames No Frame


by Joan M. Veon

The Women's International Media Group, Inc.

(Note: The night of the opening of the G-8 - there is a full moon!!!)

Q. Professor Kirton, we talked last year about what your group has done in cataloging all of the documents and in following the Group of 7. With the addition of Russia this year, what are your thoughts with regard to what it will do and what it will eventually do with regard to world peace.

A. It is a time of decisive transition in the 23 year history of the G-7 Forum which now is well on the way to becoming a G-8 Forum. That has some advantages and has some substantial risks which we are seeing with the costs of that transition here at Denver over the next few days. Because the Russians have been participating in the Summit from the very beginning, through the entire event to the very end for the first time, there is very little time left for the 7 original members to meet at 7 to address the hard-core economic issues which the world is facing at the moment. it is all very well and good to have the Eight take up the formidable array of political and global issues with the active engagement of the Russians if they can prove themselves to be a truly responsible and cooperating power it is a substantial step forward for world peace but at the same time, we do have to find new ways, I think, to preserve the G-7 as am effective institution for exerting effective collective economic leadership.

Q. Why do you think B. Clinton invited the Russians to this summit, knowing that it was extremely critical with regard to further integration policies.?

A. The President made a large geo-political choice and I think an unfortunate one. He judged that in order to have Russia acquiesce in the enlargement of NATO, he had to pay a large price. He had to give the Russians they wanted and hence full participation in his Denver Summit of he Eight. It is an unfortunate choice because it was resting on the premises that Russia somehow still controlled or had property rights in the Czech Republic or in Eastern Europe and had to be paid off, bought off or compensated to relinquish them with NATO enlargement. Even more broadly, NATO will be enlarged , Europe will be stable with the Russians in or out of a full-G-7 or G-8. so to compromise the economic effectiveness of a global institution, the G-7 to do something that is really unnecessary for a regional European institution seems to be a bad choice especially because the European Union is rigorously refusing to allow Russia any greater participation in the European Union itself so why are we paying the price here in North America, across the Pacific in the global institution to do something that the Europeans are unwilling to pay the price to do in Europe itself.

Q. Europe has been having a lot of transitions--Chirac was narrowly voted in, Helmut Kohl has had some problems with his popularity, the Euro, I think is back on track, what do you see with regard to the integration of just the European Common Market Countries in relationship to the integration process?

A. The European process, as you observe, is in many respects sort of fraying at the edges. We've gotten through another week with the EMU not visibly collapsing but of course, it is still very precarious. You will notice that the German finance minister, Theodore Weigel had to stay at home to face a crisis-a financial crisis and a political crisis back in the heart in Germany itself. One of the things we do need to do at Denver is to sit down ---the Canadians, the Americans, the Japanese with our European partners and have a detailed and frank discussion of their internal strains and look ahead to that moment when speculators may take a run on European currencies and this time, unlike the last time when the German mark was powerful to ride to the rescue of the Italian lira and British pound, this time it will have to be US dollars, Japanese yen and Canadian dollars which will have to be deployed against speculators to dampen the volatility in world exchange markets if we are going to have to ride to the rescue. We do need a frank discussion simply to set up the regime in advance to establish, I think the bonds of confidence and trust so we are prepared to do it in a very effective and timely fashion.

But with only 1.5 hours to talk with the Russians sort of hovering in the background, it really makes it very difficult to have that dialogue that we need.

JMV: Obviously we are not going to have it. What do you see will happen in the future with regard to this dialogue?

JK: Well, I think it will gravitated to other fora such as the G-7 Finance Ministers, the G-7 Deputies and I think Clinton has enough sense not to allow the Russians to participate in that more specialized forum. I think there is some degree of hope that we might move back to the model at Lyon last year when we go to Birmingham next year once we have had the geo-political pageant in Denver. We might re-discover in Europe itself that we need more than 1.5 hours for an economic discussion , maybe a full day for an economic discussion at 7 or maybe the 7 heads could meet on the margins of another international gathering over Christmas, meet at 7 to look at the pure economic issues that the Russians are not now and will not for some time be in a position to contribute to.

JV: Let's talk about the dollar-you mentioned Canada, Japan and the US would have to bail out anything in Europe. The dollar has fluctuated vastly in the last 2 years with regard to its value against the yen--.80 to 1.55 to 1.12 which brings us back to where it was before it dropped in April, 95 - what do you see with regard to the dollar fluctation and the problems in the global economcy?

JK: The problems that we have seen for the past 6 months or last year is in fact a testament to the effectiveness of the G-7 in coordinating the exchange rate intervention to adjust the world's two most powerful currencies to the ranges they want them, even in an age of global financial integration of rampant globalization when many think that the markets are in control and governments are powerful, the contrary case has been proved by the experience of this past year. Looking ahead, though, we do have some underlying structural problems. It has been a very dismal decade of grwoth for Japan and they are at the point where many of their financial institutions are facing the prospect of in some cases, collapse on the order of the S&L crisis the Americans experienced some time ago. But in Japan, whch is the largest creditor country which has been the source of capital that we all need but here in Denver, another one of those important issues, we need a frank discussion on how Japan is going to adjust over the coming months to maintain the growth that it started in the last quarter but has been dampened in the past month. It is going to take it out by lowering the value of the yen which will shoot up its trade surplus with the U.S., create trade friction here which is exactly what we don't need when we have a rather precarious Japan. how can we best assist them to go to the path of de-regulation of structural reform within their own economy to reduce the ridigities which would make it easier for them to grow through ther own domestic demand. So I think we are not going to have the opportunity to focus as much as we should on those issues and so I think Jpan is going to continute to languish to continue to go for gorwth through the old 50-60's models of export-led growth through a weaker yen and a yen that is faling and an American dollar that is increasing and trade tensions which are mounting, not a good recipe for the future.

JV: One of the things the Japanese have been doing with their very low interest rates is investing all over but in Japan and Amrerica has a very high % in our stock market and U.S. treasures of Japanese money. What would precipitate the Japanese taking their money out of the U.S. and what would be the fallout?

JK: If American interest rates were to go lower. But there are little prospects of that. Were the American stock market to end its magnificent run, Japanese money would flow from equities. But again, I think from past experience there is relatively little chance of that. I think Japanese money is largely here to stay in the U.S. where it is a good place to put its money in this decade. But it is the other side of the coin that worries me. Japanese investors do need to invest in Japan and American investors need to be allowed to invest in Japan. Not only to give the Japanese the capital at home that they need, to carry them through to the next generation of growth, particuarly through direct foreign investment where they can get that burst of new ideas, entrepreneurship, innovation, technology that is showing its rewards in Denver, CO and Silicon Valley but also to create a genuine interdependence. Not just a Japan that has invested a lot in the U.S. and Canada but a U.S. and Canada that can have comparably large investments in Japan so that we can be bound together on a more equal basis as a G-7 community.

JV: A high official from the Canadian ministry said yesterday that globalization reflects the "blur between political and economic, domestic and international polcies." Could you comment on that concept and where will it lead as we try to integrate into the globalizaton process?

JK: We are much more interdependent than we were and certainly many issues that were once domestic have become the souces of international dialogue of competitive advantge. One that is on the agenda of the G-7 is pension plan reform, publically finance health-care--issues that have been on the minds of Americans in the during the Clinton presidency. Issues that have an important impact on our fiscal policy and our budget deficits as our populations age and the burden on the federal treasury mounts. We have to have a frank dialogue as to whether we can afford them because it is Canada , the U.S., the Euoprean countries and Japan. No one of our countries, back home, through normal politics, can have political look senior citizens and aging baby boomers in the eye and say, we have to cut some of your privileges and entitlements now if we are going to be able to afford the system without bankrupting our federal treasuries over the long-haul. But if we all bite the bullet together, if we all idenity the best practices among our G-7 familiy, identify the best ways of doing it, we can move ahead together and collectively so that once domestic policy is at the forefront of the fiscal policy coordinate concerns the G-7 has had from the start...a caring society, how do we sustain it will be an important subject for dialogue here. This is a topic of course that once again the Russians have relatively little to contriute to.