Slump Hits Leaders Of Industrial Nations
RECESSION has been damaging the political careers of most leaders in the industrial democracies.
The economic slump probably cost President Bush his job at the White House. Brian Mulroney, hit by the extended malaise in Canada's economy, announced his resignation as prime minister last month. In Germany, Chancellor Helmut Kohl is in political difficulty as business activity falters there. President Francois Mitterrand's Socialist Party is expected to lose to a center-right coalition in France's parliamentary elections Sunday.
In Britain, 3 million unemployed workers and 10 quarters of recession, the longest since World War II, have hurt the political prospects of Prime Minister John Major.
Systematized corruption and a weak economy in Italy could cost an entire generation of politicians their jobs. J. Paul Horne, international economist of Smith Barney, Harris Upham & Co. in Paris, describes the Italian situation as "a fundamental political revolution" of a type not seen in Western Europe since the creation of democracy in Spain.
Japan's Prime Minister Kiichi Miyazawa also suffers from the double trouble of scandal and the burst in his nation's economic bubble, producing the first real recession for Japan in more than a decade. National output slid in the last half of 1992.
"The Group of Seven survivors' popularity and political power are under attack as they are pushed to change basic policies and `go for jobs,' " Mr. Horne notes.
The British government's new budget Tuesday was designed to assure that a modest economic recovery keeps going. This week the Japanese government was discussing a third fiscal package of around $59.3 billion to stimulate the economy. Last weekend, after more than two days of steady negotiations, Mr. Kohl and his ministers, leading figures in all the main parliamentary parties, and the 16 premiers of the German federal states, thrashed out a political deal on the soaring cost of subsidizing the east Germa ny economy. Their efforts were rewarded Thursday when the German central bank lowered a key lending rate by a half percentage point to 7.5 percent.
In the United States, President Clinton has been pushing through Congress his fiscal stimulus program, intended to assure continuation of the economic recovery. Roger Brinner, chief economist of DRI/McGraw-Hill, a Lexington, Mass. economic consulting firm, estimates "the pure fiscal stimulus to be insignificant in 1993 because heavier personal and corporate taxes are accrued, even if not paid in cash, this year." From 1994, the fiscal package shifts to economic restraint as more tax hikes and spending cu ts take effect. However, a sharp decline of about 1 percentage point in interest rates should offset the fiscal drag. These two factors combined should mean 200,000 more jobs in 1994 than if there were no fiscal policy changes, and the federal deficit should be reduced by $50 billion in 1994 and by another $25 billion per year through 1998, DRI calculates.
Much of the industrial world is counting on the US recovery to boost their exports and economic activity. Even with that, the International Monetary Fund projects that industrial countries will grow only 0.5 to 2 percent this year.
"It is hoped ... that there will be a turnaround in 1994, but we know full well that from now on, growth alone will create fewer jobs than it once did," IMF managing director Michel Camdessus noted in a recent speech in Brussels.
Horne sees the British, Canadian, and US economies moving forward this year. Southeast Asia and Latin America, with the exception of Brazil, will do "fairly well." Helped along by an easier monetary policy and lower interest rates, the continental European economies should pick up some steam in the early fall. Smith Barney's economist in Tokyo, Tetsuo Tsukimura, sees Japan's gross domestic product declining 0.5 percent this year and industrial production dropping by 3 percent.
Mr. Camdessus calls for "rapid and concerted action" to boost economic confidence and growth by top-level economic and financial officials of the world at an IMF policymaking meeting in Washington in early April. "A strategy of cooperation in pursuit of lasting growth can be successful only if it is a strategy of solidarity," he says.