Treasury Secretary W. Michael Blumenthal, Federal Reserve Chairman Arthur F. Burns and leaders of four other major powers met secretly in Paris last Saturday and agreed the world economy faces a new slowdown next year.
There is even a danger, they concluded, of slipping into a new recession before the recovery from the current recession is completed.
The one-day session was not prompted by the recent decline of the U.S. dollar - although that was discussed - or any other immediate crisis. The date was fixed routinely some weeks ago as part of a process of consultation among the "Big Five" nations - the U.S. West Germany, Japan, France and Great Britain.
Meeting with Blumenthal were West German Finance Minister Hans Apel. French Prime Minister Raymond Barre. British Chancellor of the Exchequer Denis Healey and a Japanese official of non-ministeral rank. Burns central bank counterparts also participated.
An American official who would not allow his name to be used, said there was great concern over the apparent slowing of economic growth rates in the industrial world on side of the U.S. He said it is certain that unemployment, particularly in Europe, will be rising next year."
A recession is usually detined as an actual drop in real growth rates for six months. Sluggish growth rates, which allow unemployment to creep up are usually said to be a sign of a "growth recession." That appears to be what is in store for next year.
There were no new agreements or shifts in policy as a result of the meeting, according to several sources. But Blumenthal Heavley and Barre were all reported to have emphasized again the belief of their governments that both West Germany and Japan should boost economic expansion at home, and reduce their trade and balance of current accoutn surpluses.
The only substantive agreement of the meeting was on the question or approving a successor to J.J. Witteveen as managing director of the International Monetary Fund. There was a general consensu, taken informally, backing 48-year-old French Director of the Treasury Jacques de Larosiere de Champfeu.
Both West German and Japanese of fields expressed continuing concern to Blumenthal and Burns about the decline of the U.S. dollar in exchange markets this year.The Japanese fear that the 21 per cent rise in the yen against the dollar will abruptly choke off their exports, and contribute to worsening deflationary trends at home. Apel has said bluntly that the dollar is undervalued compared to the Deutsche mark and threatens to unereut German exports in world mar dercut German exports in world markets.
So far, the U.S. has resisted the suggestion that it intervene massively to support the dollar at any given level. But Burns has insisted publicly that progressive depreciation will lead to a loss of confidence and errate new increasing the cost of imports.