Two political summit meetings, one in Vancouver, the other in Luxembourg are set to consider crucial aspects of the world economy. In Vancouver, 18 members of Apec, the Asia-Pacific Economic Co-operation, will examine how best to respond to the increasing threat that economic turbulence in the Asian region could spread rapidly from Japan and South Korea to elsewhere in the developed world. In Luxembourg, leaders of the European Union are to pass judgement on proposals to increase employment opportunities by greater flexibility and benchmarking of best practices. The Vancouver agenda is much the more urgent of the two. A failure to address the South Korean and Japanese questions effectively, could scupper growth in the world economy, without which the attempt to create jobs in Europe would be doomed to failure. Yesterday the South Korean currency, the won, was devalued by a further 10 per cent as markets responded to the government's belated attempts to liberalise its financial markets. The country is saddled with large debts, incurred during the years of rapid but protected growth. If such a crisis continued, the effects would rapidly be felt in Japan and the United States, since South Korea is now one of the world's strongest economies - as strong, for example as the Thai, Malaysian and Indonesian economies combined. It is essential that its underlying strengths be recognised by multilateral institutions such as the International Monetary Fund, rather than allow the markets proceed irrationally to drive down its economic valuations.
The Apec leaders will hear proposals to create a regional buffer fund that could come to the aid of such beleaguered economies which are in urgent need of rescue from financial collapse. Some of the leaders worry that this could undermine the role of the IMF, or that it is premature to create a new institutional architecture before greater political cohesion between Apec states has been achieved. Even though expectations of a Pacific-dominated 21st century have proved optimistic, there can be no denying that this will be one of the core arenas of economic performance, which it would be disastrous to endanger by a failure to handle this crisis in timely and effective fashion. Japan's role will be crucial, both in terms of its domestic reform programme and, most important, in the solidarity it extends to regional partners in Asia. Despite the difficulties it has at home and which make it cautious about extending financial aid to banking institutions, there is an over-riding need to mobilise its huge foreign exchange reserves and export surpluses so as to prevent a rapid debt deflation in Asia, which could in turn endanger the huge Japanese holdings in the United States. The least the European leaders could do would be to signal their concern at the rapid unravelling of Asian economies, in the sure knowledge that the ripple effects will be felt eventually in this continent. They also need to consider in much more detail how economic and monetary union will affect world economic relations, including how the value of the euro should be struck against the dollar and the yen. It has been expected that EMU would be introduced against a relatively benign scenario of growth and financial stability. An Asian economy which is unravelling would certainly undermine such assumptions and therefore alter the premises on which employment policies are based.