The State of the World Economy

## The world recession More than a year after Ronald Reagan and Fran~ois Mitterrand came to power, it is now apparent that while their basic philosophies are fundamentally opposed, these differences are much less clear in the day-to-day im-Only in quite specific conditions, which today appear increasingly elusive, can interdependence become a source of common prosperity and possible peace. In the international "natural 4. United States Participation in the Multilateral Development Banks in the 1980s (Washington, D.C.: Department of the Treasury, 1982). xxiv should follow more prudent credit policies while at the same time keep the door open to an expansion of trade provided that it is accompanied by internal reform in the Eastern economies. Hungary's entry into the Westerndominated International Monetary Fund in May 1982 and the fact that indebted Romania is already a member provide a limited but intriguing testing ground for this strategy. In any case, Washington must remember that a tough stand on East-West trade may well increase the influence of the Soviet Union in Eastern Europe. Trade is definitely not the "arms of peace" that Samuel Pisar once imagined, and it is our. responsibility to prevent its becoming one more "arm of war" in a world where these are already in abundant supply. The hopes crushed by martial law in Poland were not only the hopes of the Polish people. Poland's "area of freedom" within the Soviet empire also seemed to provide grounds for hope in Western Europe. It appeared to offer a geopolitical rationale for the hundreds of thousands of peace marchers who demonstrated in the streets of Amsterdam, Berlin, and London while the U.S. President, untutored in the subtleties of international life, fueled their anger by theorizing about a nuclear war "limited" to their continent. Hence, the opposition to the installation of U.S. nuclear missiles capable of striking the Soviet Union. Ironically, that installation had been demanded in 1977 by Chancellor Schmidt in order to offset the threat of Soviet SS-20's and strengthen the "coupling" between U.S. strategic forces and European theater forces. Over and above the military and diplomatic dimension, the debate on the security of Europe raises more fundamental questions. The United States is increasingly attracted to the Pacific region, where the economic vitality of the world seems concentrated and with which it already does more trade than with Europe. Meanwhile, the Old Continent seems to be hovering between decline and renaissance, neutralism and Islamic fundamentalism preached from the city of Qom is not the only threat to the shared values and objectives that make the growth of economic interdependence possible. The "monetarist fundamentalism" preached in the holy city of Chicago by Milton Friedman and religiously practiced by some devoute followers is also exacting its toll. The foreigi1 exchange markets are again subject to excessively large swings of the pendulum. Contrary to the hopes of their chief advocates, 7. Front Matter....Pages i-xxx Front Matter....Pages 31-32 World equilibrium and European security....Pages 3-27 In search of energy security....Pages 29-74 Front Matter....Pages 75-76 International trade: the new insecurities....Pages 77-115 The new equations of monetary and financial insecurity....Pages 117-168 Front Matter....Pages 169-170 The world recession....Pages 171-183 The broken consensus within the industrialized West....Pages 185-207 The crisis in the centrally planned economies....Pages 209-232 Front Matter....Pages 233-234 From Morocco to Pakistan: the Islamic Fault Line....Pages 235-254 Oil and economic development in the Arab World....Pages 255-262 Is Africa being squeezed out?....Pages 263-279 China: the great readjustment....Pages 281-288 The North-South dialogue and economic security....Pages 289-306 Back Matter....Pages 307-351