London Communiqué: Group of Seven Agrees on Basis for Recovery; Supports Emphasis on Structural Reform

• Pages: 69-71

Page 69

We discussed recent developments in our own countries, which have, on the whole, been positive. In the United States, the United Kingdom, and Canada, where growth has been strong, domestic inflationary pressures have been weaker than past experience would have suggested. Their authorities will continue to monitor developments closely and act if necessary to maintain conditions for noninflationary growth.

In Germany, France, and Italy, growth has generally continued to pick up. We welcome its greater balance, but economic activity still remains below potential. While this recovery will help to create new jobs, reducing unemployment to acceptable levels in these countries on a sustainable basis will require implementing further significant structural reforms especially in the labor market but also elsewhere in the economy.

In Japan, activity is low, and the outlook is weak. Recovery will require continued action to strengthen the financial system and regulatory reforms of the financial and other sectors, so as to increase openness. We welcomed the progress so far on the "big bang" reforms of the financial system. In the view of the IMF, there is now a strong case for fiscal stimulus to support activity during 1998.

In the context of surveillance, we reviewed recent developments toward European Economic and Monetary Union and discussed its implications for the Group of Seven economies.

We discussed developments in our exchange and financial markets. We reiterated that exchange rates should reflect economic fundamentals and that excess volatility and significant deviations from fundamentals are undesirable. We emphasized that it is important to avoid excessive depreciation where this could exacerbate large externalPage 70 imbalances. We agreed to monitor developments in exchange markets and to cooperate as appropriate.

Improved employability will play an important part in ensuring the widest inclusion of our citizens in all our countries' prosperity, and improving prosperity overall.

Developments in Asia

We reviewed the serious economic and financial problems in some Asian countries. We agreed that the basis for recovery can best be established through the adoption and vigorous pursuit of significant and far-reaching reforms by the affected countries, with temporary financial assistance where necessary, led by the IMF and other financial institutions, with the private sector playing an essential role.

We emphasized our support for the approach taken by the international financial institutions, in particular the emphasis on structural reforms to reduce inappropriate government...