Given that the general economic indicators were significantly better for Germany at the Halifax Summit last year, there will be a thrust from Chancellor Kohl on unemployment and Germany's spiralling budget deficit.

Kohl has indicated that he is prepared to take drastic austerity measures aimed at implementing his proposed DM 70 billion (US$46 billion) spending cuts, which includes a two-year wage freeze for government employees, a reduction in unemployment benefits, a reduction in sick pay from 100% of wages to 80%, and a gradual rise in retirement age for both men (63 to 65) and women (60 to 63). Failure to reduce spending could mean that Germany will fail to meet the debt and deficit criteria to launch Europe's single-currency project. He will want G7 endorsement for this approach.

These issues are popular themes for Chancellor Kohl at G7 Summits; this year climate change will be pushed by the Germans given their sponsorship of the first Conference of the Parties to the Climate Change Convention in Berlin at which time they expressed concern that the G7 had not gone far enough to reduce their greenhouse gas emissions. Kohl has made the most far-reaching commitment of the G7 to curb greenhouse gas emissions by an additional 20% below 1990 levels by the year 2005.

This issue is important for Germany given its dependence on international markets for goods, services, and capital, the Germans rely on progressive international economic developments within the G7, the EU, and Central and Eastern Europe; as a result, joint management of international economic developments through macroeconomic policy coordination - particularly through the ratification and implementation of the Uruguay Round - will continue to be highly relevant for Germany at Lyon.

Although Germany strongly supports reform programs in Russia and Central and Eastern Europe, there are divergences in Bonn regarding Russian association with the G-7; while Foreign Minister Klaus Kinkel has emphasized Russian participation - and talked of a G8 - there is dissent within the Ministry of Foreign Affairs and other ministries which are more aware of the difficulties involved in supporting Russia, of Russia's economic weakness, and of the potential for social and political upheaval in the region.