Year XL, 1998, Number 3 - Page 226
SOVEREIGN YET INTERDEPENDENT: THE FUTURE OF THE G7
In 1974, Jean Monnet drew up, for the then President of France, Giscard D’Estaing, the memorandum on the “provisional European government” which led to the establishment of the European Council of heads of state and of government of the EEC and thus, to the institutionalisation of the procedure of European summits. In the same year, in a newspaper interview, Giscard D’Estaing mooted the idea of instituting top-level meetings of the heads of state and of government of the Western worlds’ most industrialised countries. The countries in question discussed the proposal at the conference on security and cooperation in Europe held in Helsinki in July 1975 (which ended with the signing by 35 countries of the treaty known as the Helsinki Final Act). And so began the process which led to the formation of the so-called G7 (now, since Russia’s entry, known as the G8) whose first ever meeting was held in Rambouillet, in the autumn of 1975.
Sovrani ma interdipendenti is the title of a book which examines why this body was created and looks at what has happened in its first decade of operation, from 1975 to 1986. A look back, even in general terms, at the development of the G7 and at the problems with which, as time has gone by, it has been confronted, may provide elements which can further an understanding of what the future holds for this body, after the introduction of the euro. According to the book, the institutionalisation of top-level meetings was encouraged by three structural features which characterised international relations in the course of the 1970s.
The first of these, a result of the increase in economic interdependence, was the intertwining of foreign policy and domestic policy. Indeed, the thirty years following the end of the Second World War saw a progressive increase in the level of economic interdependence, initially as a result of the development of international trade and subsequently through the increase in direct investments abroad and through greater capital mobility. Interdependence gradually, but inexorably, wore away the barriers separating domestic economies from the international economy and, as a result, those separating domestic from foreign policy, reducing the capacity of individual states to determine and pursue independently their own macroeconomic objectives. Thus, the need arose for the most industrialised states of the Western world to agree upon which main economic measures should be adopted in an attempt to counterbalance, through the development of common policies, the loss of national autonomy provoked by the greater level of integration.
The second feature of international relations in the ‘70s recalled by the book, is the breakdown of the hegemonic position held by the United States from the end of the Second World War to the early ‘70s, when it was weakened by the decision, taken in the summer of 1971, to suspend the gold convertibility of the dollar — a decision which highlighted America’s growing incapacity to ensure an ordered evolution of the world’s economic and monetary relations. On the same subject, the book points out that the golden ages of free trade have typically been characterised by some form of government of the economy by a hegemonic power which has ensured its ordered development: this was the role played by Great Britain at the end of the 19th century and by the United States in the post World War II period. The book points out that it was indeed the lack of a hegemonic power in the period separating the two world wars, (or as suggested by Kindleberger, of a world government), that constituted the basis of the Depression of the 1930s. The authors of the book explain how the economic crisis of the early ‘70s (which saw the collapse of the Bretton Woods system and the first oil crisis generating the worst recession of the post war period) gave rise to the same institutional problem that had emerged in the ‘30s, with the United States no longer in a position to cope, on its own, with the management of the world’s economic-monetary affairs. “In place of the hegemonic stability guaranteed for a quarter of a century by American supremacy, there had emerged an objective need to work out a new (and this time collective) system for governing and controlling the world’s economy”. In opposition to this suggestion of collective management, another, more radical way was proposed which consisted of “the creation of new supranational institutions endowed with real authority and sovereignty”, an idea which, the authors hasten to add, was soon discarded as politically impracticable.
Finally, moving on to the third feature of international relations in the ‘70s, contributing to the formation of the G7, the aim behind the summit proposal was to restore to politics its supremacy in the management of inter-state relations, especially in the economic-monetary field, lessening the role until then played exclusively by high-ranking international bureaucracies.
With regard to the working of the G7, the book examines the evolution of the body’s spheres of intervention. Giscard d’Estaing originally intended the summit meetings to focus exclusively on monetary issues and the opening one was, in fact, devoted to this area. Indeed, at the first meeting the transition to an international monetary system based on floating exchange rates was accepted as definitive, (and consequently moves to reform the statute of the International Monetary Fund were oriented in this very direction). It soon became clear, however, that the scope of these top-level meetings could not be restricted to monetary policy and (also because the world’s economy was going through a difficult period) the G7 began to address the problem of how to sustain economic growth. In the first few years of its operation, which coincide with the second half of the 1970s, there was growing support for the Keynesian concept of “locomotives” of the world economy (in other words, for the idea that the prospects of recovery of the world’s economy depended on the possibility of relaunching the domestic economies of three countries: the United States, Japan and Germany). Thus, summit meetings held in that period were, for the most part, devoted to efforts to convince the three countries in question to take on the task of boosting domestic demand. The Bonn summit (1978) sanctioned the application of a series of expansionist measures in Europe, in the United States and in Japan which, however, according to many observers, led to a high demand for oil products and a further increase in their prices, (and this, in turn, increased the impact of the 1979 oil crisis and the subsequent recession which was prompted by the measures adopted to reduce energy consumption). From this viewpoint, the meeting of the G7 in Bonn marked the end of one phase of world politics (founded on a Keynesian type political design) and opened the way for a new one: a phase characterised by the “laissez-faire” policies of Reagan and Margaret Thatcher. As is evident today, these policies resulted in an accentuation of the world’s economic interdependence, even though this is now characterised by greater economic imbalances.
As an aside, it is worth commenting here on the clash between the Europeans and the Americans over the United States’ monetary and budgetary policy. In the course of the following meetings, the positions adopted by the former fluctuated wildly as a result of their division and of their incapacity to reach an agreement with the United States on a common economic policy (forcing them, ultimately to yield to the American position). In fact, having criticised the inflationary policy and the low interest rates in force in Carter’s time, the Europeans later (Ottawa 1981) rejected the United States’ policy of high interest rates and a strong dollar, prompting a clash (Versailles 1982) between the American line which was one of non intervention in the foreign exchange market, and the pro-intervention stance adopted by the French. The French line can be explained by the fact that Mitterand, who had just come to power, failing to appreciate the constraints placed upon him by France’s participation in the European Monetary System which had been created several years earlier, was intent on following a policy of economic development and a vast programme of nationalisation: the result was a monetary crisis in France followed by a rapid change of direction in the country’s economic policy. The two events which occurred in this period, that is, the second oil crisis and the failure of Mitterand’s political design, provide a very good illustration of the level of integration of the world’s most industrialised countries at that time. It also highlights the implications of globalisation of the economy, and the far-sightedness of the idea of creating a political organ to “govern” these phenomena. Another factor that emerges clearly from these two events is the inadequacy of a response based on intergovernmental cooperation which, in order to obtain general consensus, allowed the adoption of only minimal measures — and even these were conditioned by the United States.
As mentioned above, the Keynesian phase was followed by the start of a new phase of world politics which tended towards the progressive reduction of public intervention in the economy and was based on an increasing liberalisation of trade and capital exchanges on a global level, in other words, on the decision to leave the market to manage, by itself, the growth of economic interdependence. What the book fails to make clear is the fact that the change of direction, towards economic liberalism, was the result of the failure not of a global Keynesian political design, but of the summation of national Keynesian political designs. With the start of this new phase, however, the European governments which succeeded one another (both right and left wing) were obliged to introduce similar measures, oriented towards a freedom of trade which was, more than anything else, seen as an instrument for rectifying the trade deficit and as a means of safeguarding the competitiveness of their own industrial systems. As an initial measure in the new political phase, Reagan launched a policy of high interest rates which, given that the new government was committed to funding a major US re-armament programme in order to strengthen America’s leadership of the Western world and its policy of confrontation with the Soviet Union, lasted throughout his first term in office. And, for Europe at least (which continued to follow a stricter economic policy than that adopted by the United States), the legacy of this period was high unemployment.
Starting with the Bonn summit (1978), questions relating to trade policy became an established part of the agenda of G7 meetings. With the USA putting the pressure on, the GATT negotiations reached the end of the Tokyo Round and, subsequently (Williamsburg 1983, London 1984), the start of a new round (the Uruguay Round) which led to a further liberalisation of trade and of capital movements and the creation of the WTO. With the start of the new GATT round, two opposing positions emerged: one, supported by Reagan, which wanted to see free trade of goods and services on a global scale and the other, supported by the French, which placed a greater emphasis on monetary stability through reform of the international monetary system. Obviously, the American position reflected the United States’ interest in asserting the strength (originating from their continental dimensions) of its industrial system and of its financial market, both of which were facilitated by the fact that they were based on the dollar, which is used as a reserve currency. The French position, on the other hand, was dictated by the country’s concern over the need to exercise control over the dollar, whose oscillations were capable of cancelling out (exclusively to the benefit of the Americans) any positive results generated by the liberalisation of trade. This French-American confrontation resulted in tighter control over wild exchange rate fluctuations, but not in the achievement of France’s main objective — even though, with the coming into force of the EMS, Europe strove, in the meantime, to afford its market some protection against the fluctuations of the dollar.
The other two issues of global significance which have become an established part of the agenda of the G7 are foreign policy and security (Ottawa 1981 and Versailles 1982) and the question of North-South relations. In Ottawa and in Versailles, Reagan stressed the need for a policy of restriction of trade relations with the Soviet Union, clashing with the more moderate European line supported by Germany in particular. Even though a joint political declaration in favour of the installation of Euro-missiles was drawn up at the next summit meeting in Williamsburg in 1983, relations between Europe and the United States started to enter difficult waters, particularly after the launch, by Reagan, of the SDI project (Bonn 1985). Although Germany and Great Britain declared their willingness to take part in this project, the French openly dissociated themselves from it. Meanwhile, as far as relations between the industrialised Northern hemisphere and the underdeveloped Southern hemisphere were concerned, America adopted a more prudent stance, even (and particularly as from the mid 1980s) modifying its monetary policy in favour of lower interest rates. This change in the American economic policy was prompted not only by the concern that a revaluation of the dollar favoured by high interest rates would generate protectionist trends in American industry, but also by the fact that the high interest rates were creating difficulties for the developing countries most heavily in debt and in particular, for the countries of Latin America (Williamsburg 1983, London 1984). The range of problems which, as time has gone by, have been brought before the G7 certainly extends beyond than the areas (economic policy, trade policy and foreign and security policy) mentioned here. Others which have been added to this list include energy policy, and the problems of international terrorism, pollution, unemployment, and so on. In order to discuss these specific questions, meetings of the particular Councils of Ministers involved are held periodically, a fact which goes a long way towards confirming that the G7 can be seen as a sort of World Council of heads of state and of government of the most industrialised countries, which gives rise to meetings of Councils of Ministers along the lines of those held within the sphere of the European Union.
As final comments on the contents of this book, a number of remarks can be made on the role of Europe in summit meetings as well as a few reflections on what the future might hold for the G7, bearing in mind that the book does not foresee any change in its current composition, or in its configuration as an informal institution.
The London meeting in 1977 was the first in which the European Commission participated — even though it could not take a full part in the proceedings as the presence of the European Community was not formalised until the 1981 meeting, and even now, Europe still does not have an autonomous role of its own to play. Furthermore, while the “hegemonic stability” guaranteed by the Americans was indeed in a weakened state at the time of the birth of the G7, contrary to the view of the authors of this book, it could not yet be considered a condition which had been surpassed. Strengthened, in fact, by the hegemony of the United States in the Western world, the dollar, in its role as reserve currency, (and despite its being inconvertible), paradoxically grew in stature from the ‘70s onwards. And the persistence of this American predominance, assisted by the fall of the Berlin Wall and by the collapse of the Soviet Union, has helped to conceal, for almost two decades, the fact that the inconvertibility of the dollar into gold posed, for the first time in the history of monetary relations, a new problem: that of an international monetary system founded on an inconvertible currency. The significance of this innovation, as far as the future of the international monetary system is concerned, will become clear only after the euro has come into use. The fact that the euro is likely to become another inconvertible reserve currency will render necessary the drawing up of agreements, following the model of the EMS, to stabilise the exchange rates between the euro and the dollar. The G7 finds itself faced with a major change as the arrival of the euro throws into question not only the presence of individual countries, but also the future of the body itself: either it becomes the organ responsible for the management of the world’s economy, or its destiny is one of inexorable and fatal decline. The problem, from the federalists’ point of view, is how the G7 might be developed in order to ensure that it evolves into a more efficient, generally more stable and more democratic form of institution.
It is possible to imagine three, complementary, developments. First of all, as the French minister of economy and finance, Dominique Strauss-Kahn, recently pointed out, there is a need for the European Union to be represented within the G7 as a single entity rather than through its individual members. Obviously, such a European presence, in order to make sense (that is, in order to influence the functioning of the G7 in any real way), depends on the existence of a Europe which has the capacity to decide and to act — and that means attributing the current European Commission with powers of government. Thus the G7 (should Britain adopt the single currency) would become the G4. Since the G7 was conceived as a platform for discussing monetary relations between the United States, Europe and Japan, the question of relations between the euro, the dollar and the yen constitutes a theme which is certainly destined to dominate future summits, and in this sphere, it is a politically united EU that must take its stand, especially in discussions on exchange rates. Furthermore, in the sphere of interest rates which, in accordance with the Maastricht Treaty, is the province of the European System of Central Banks, and bearing in mind the integration of the world’s financial market, it will, in order to follow the growing integration of the world market, be necessary to promote a greater harmonisation of the direction of the monetary policies adopted on the two sides of the Atlantic. The other area in which Europe will need to speak with a single voice will be that of budgetary policy, normally used as a means of boosting demand and as a locomotive which has the effect of pulling the world economy after it. It should in fact be pointed out that the main areas represented in the G7, the United States and Europe are currently implementing strict budgetary policies: the European Union (even after the launch of the euro) in order to meet the convergence parameters established by the Maastricht Treaty and the United States in order to comply with a law passed by Congress. Should this situation persist, it will ultimately reduce the extent to which budgetary policies can be used as the basis for the development of the world economy and thus create the risk, especially if other countries should decide to follow the same direction, of a global stagnation of demand. As has been the case over the last decade, the task of promoting the economic development of the most backward countries would thus fall exclusively to the forces of the market, with all the clearly negative consequences, illustrated by the crisis that has hit the economies of South East Asia, that this would produce, as well as more and more marked imbalances in the distribution of income, even within the confines of the most industrialised countries. These are the dangers which the United Nations alerts us to every year in its Human Development Report and which signal the need for a greater level of government of the world economy, not a reduction in the intervention on the part of public powers. In any case, even if the G7 should deem it appropriate to resort to budgetary measures as a means of shoring up the world economy, (which is what has happened in the past), it is now unthinkable that Germany should be expected to shoulder the burden alone: it is a decision that would have to be taken by the European Union.
The second development that may be expected in the future of the G7 is its enlargement. By admitting Russia, the limitations of a summit which brought together only the Western powers and turned the body into another anti-Soviet bloc institution have now been overcome. And it will prove necessary, in the near future, to enlarge it further to embrace other economic-industrial scenarios, and also in order to put the case of less developed countries. Both the French president Chirac and Zbigniew Brzezinski have recently expressed this view, proposing the admission of the People’s Republic of China.
The third foreseeable development is linked to the other two, in other words to the implications of the presence of the European Union as a single entity, and of the eventual participation of other world regions. Indeed, there can be no doubt that the reason the G7 has survived this long is that, for better or worse, the United States has played a hegemonic role within it, and this has allowed it to adopt a common stance — albeit in the pursuit of minor objectives — on most of the problems with which it has been faced. The presence of the European Union whose weight, with the euro, would match that of the United States, would strengthen the role of the institution, but may, at the same time, generate within it tensions which could even cause it to seize up altogether. The kind of development which would, on the other hand, allow the reinforcement of this body can be identified in the proposal advanced some time ago by Jacques Delors. The former president of the European Commission, in response to what have become the planetary dimensions of economic, population, financial, environmental, and other problems, put forward the idea of setting up, alongside the existing United Nations Security Council, a Council for Economic Security. In fact, such a council already exists in the shape of the G7 — but it could of course be transformed in the manner suggested by Delors and inserted into the framework of the institutions of the United Nations Organisation. In view of the problems which the G7 is required to tackle, this would clearly not be a satisfactory solution as it does not allow the limitations of the institution (which derive from the fact that it works on the basis of intergovernmental cooperation and does not call into question the exclusive sovereignty of the participating countries) to be overcome. Having said that, a development of this kind would nevertheless constitute a step in the right direction as it would strengthen the G7, giving it a definite institutional guise. Inspiration for all can be drawn from the positive aspects of what can, in Europe, be seen as the formalisation, at Community level, of the meetings of the continent’s heads of state and of government. Having been transformed into the current European Council, these meetings now constitute an organ whose initiatives have made the progressive consolidation of the European Community possible, and provided federalists with a more advanced plan of action.
In conclusion, these developments would have the advantage of making public opinion much more aware than it currently is that the globalisation phenomenon has prompted the formation of a sort of world “government” of the economy whose limitations, which could be overcome by the federalist initiative, lie in its total lack of democratic legitimacy.
 R.D. Putman, N. Bayne, Sovrani ma interdipendenti (I Vertici dei sette principali paesi industrializzati), Bologna, Il Mulino, 1987.
 C.P. Kindleberger, The World in Depression, 1929-1939, London, Alien Lane, The Penguin Press, 1973, p. 308.
 R.D. Putman, N. Bayne, op. cit., p. 25.
 Reagan, for example, contested very strongly the presence of the European Commission as it was not a true government.
 D. Vernet, “‘Europe-Etats-Unis, nouvelle donne?” in Le Monde, 5-6 July 1998.
 F. Spoltore. “Federalismo, deficit e nuovo ordine mondiale”, in Il Federalista XXXIX (1997), pp. 75 onwards.
 Z. Brzezinski, The Grand Chessboard: American Primacy and Its Geostrategic Imperatives, New York, Basic Books, Harper Collins Publisher, 1997.
 Delors, L’unité d’un homme, Paris, Editions Odile Jacobs, 1994. In the book, Delors says, with reference to the Council for economic security: “This Council for economic security will be made up of five permanent members (The United States, Russia, The European Union, China and Japan) and a representative of each of the world’s major geographical areas (Central and South America, Africa, Asia, the Middle East…). At the level of the heads of state and of government, the Council will meet once year, and other meetings of competent ministers will be held in the intervening period. The Council will strive gradually to establish a global vision of the major parameters of world evolution (economic, monetary, financial, social, environmental, demographic, etc.). On the basis of this a real awareness will grow of the relationships between them. This institution will have the advantage of embracing the whole world, and will not, therefore, look like an exclusive club open only to the rich countries. And while this will not eliminate altogether the risk of causing offence in some quarters, the important thing is to create a forum which might become the embryo not so much of a world government, but of an institution capable of viewing the problems of the world in a sharper and more exhaustive manner. The meetings will also be attended by representatives of the major international organisations, such as the International Monetary Fund, the World Bank, the newly formed World Trade Organisation, the International Labour Office, U.N.E.S.C.O., etc.” (p.185) [our translation].