EUROPE AND U.S. SHOULD PRESS CHINA TO ABANDON DOLLAR PEG

Valéry Giscard d'Estaing is a former president of France. Giuliano Amato is a former prime minister of Italy. Ralf Dahrendorf, a member of the British House of Lords, was director of the London School of Economics. This article was drafted under the auspices of the Aspen Institute Italia in Rome.

By Valéry Giscard d'Estaing, Giuliano Amato and Ralf Dahrendorf

Dear President Bush:

We have to devise an economic new deal. The European and American economies remain tightly interdependent — in fact they have become increasingly so — and the United State sand Europe represent the keystone of the global trading system.

The single most relevant action of your first administration as far as impact on the world economy is concerned was the reversal of the federal budget from a surplus of almost $250 billion in 2000 to a deficit of more than $400 billion in 2004. This has provided a powerful stimulus to the United State sand world economies but has also increased the instability of the international financial system.

What we need, Mr. President, is this kind of new deal: a commitment by the United States to gradual fiscal consolidation, a commitment in Europe to accelerated reform so as to raise potential growth and a commitment by China to abandon the dollar peg and to replace it with a peg to a basket of currencies including the dollar and the euro. To further this goal — and as part of our common global strategy — we should encourage growing links between the G7 and China.

In tackling the global problem of poverty and underdevelopment, the United States remains the industrial country with the lowest aid/GDP ratio, and your first administration insisted on shifting the emphasis from loans to grants for poor countries. We all know that it is highly unlikely that the United Nations' Millennium Development Goals will be met. While the emphasis on better governance is well placed, resources for development need to be significantly increased — both in Europe and in the United States. Mr. President, this must become a main joint undertaking for the next G8 summit.

Looking at trade issues, successful completion of the Doha Round(the current world trade negotiations focus on removing barriers for developing countries) would provide a major boost to global growth as well as to the fight against poverty.

Lastly,given the links between energy prices and economic prospects, we urge you to make a fresh start in environmental policies. We know all too well why signing the Kyoto Protocol will not be an option for you anytime soon, and yet you have to devise an American proposal compatible with the general objective of this international treaty.

(c) 2004, ASPEN INSTITUTE ITALIA/Global ECONOMIC Viewpoint
Distributed by Tribune Media Services, INC. (Nov. 22, 2004)