We Can Work It Out

For the second time in a month, Ronald Reagan is heading for a summit. This time the main topic will not be world peace and how to preserve it but a more immediate challenge: how to ensure the stability and prosperity of the global economy. The President will travel to Toronto on June 19 for the annual economic summit with the other leaders of the Group of Seven industrialized nations: Britain's Margaret Thatcher, Japan's Noboru Takeshita, West Germany's Helmut Kohl, France's Franois Mitterrand, Italy's Ciriaco De Mita and the host, Canada's Brian Mulroney. Inside the Metro Toronto Convention Center, the leaders will discuss such major problems as trade imbalances, protectionism and Third World debt.

Like Reagan's parley with General Secretary Mikhail Gorbachev, the Toronto gathering will be notable more for showmanship than for substance. As they did after the 13 previous economic summits, the leaders will issue a predictable communique containing vague pledges of cooperation and general prescriptions for economic ills that have been left untreated year after year. Yet among economists in the U.S., Europe and Japan, there is an unusual consensus about what the seven leaders really ought to do to avoid a global recession. For starters, they should be ready to admit past failures, set aside nationalistic differences and take action that may be politically painful back home. After consulting with economic experts in the seven countries, prepared this version of the "Economic Declaration" that the world wants -- and needs -- from Toronto:

Introduction

We, the Heads of the seven major industrialized countries and the representatives of the European Community, have met in Toronto from 19 to 21 June, 1988, to review the progress that our countries have made, individually and collectively, in carrying out the policies to which we committed ourselves at earlier summits. Although we can look back at a number of positive developments since we met a year ago in Venice, and can congratulate ourselves on having weathered last October's dramatic stock-market storm, we have been forced to confront an unpleasant truth: we have not lived up to our past pledges and thus are not doing as much as we could to ensure continued growth for our own countries and for the world economy.

Accordingly, and notwithstanding the likely political repercussions that await us back home, we have pledged not just to step up our rhetoric (although we reserve the right to do that as well) but to take firm and concrete measures to achieve greater economic convergence, exchange-rate stability, stronger growth, more open trade and greater generosity toward the developing world.

At the moment, the risk of a recession brought about by the global stock- market crash has receded substantially as business confidence and consumer spending have revived. Our economies have been growing at a healthy annual rate of 3%, and inflation is projected to stabilize over the next two years at about 3.75% on average. The debt crisis appears to have eased somewhat, and on the trade front, the U.S. has finally started to reduce its huge deficit.

The Risks