Bonn sees no need to step on the gas
Washington — West German Finance Minister Gerhard Stoltenberg has been in the economic hot seat. The United States, some other European nations, the developing countries, even the International Monetary Fund (IMF), would like Bonn to step on the economic gas. But Dr. Stoltenberg has been resisting.
``We see now no additional necessity for further reflation or strong additional incentives,'' the finance minister said in a recent interview here.
Since then Stoltenberg was in Paris for a ministerial meeting of the Organization for Economic Cooperation and Development (OECD), the club of the noncommunist industrial nations. Last weekend that group issued a communiqu'e with a general statement that all governments should take into account favorable trends in the world economy to promote stronger growth over the medium term.
US Treasury Secretary James A. Baker III told the ministers, ``We need stronger European and Japanese growth to help reduce trade and current-account imbalances further.''
The Germans and the Japanese, he noted, have substantial international payments surpluses. As for the US, the weakness in the dollar will help trim its massive trade deficit to perhaps $100 billion in 1987, down from $125 billion this year and $145 billion last year. Mr. Baker went on to say, however, that the 1987 level is ``not politically sustainable.'' Protectionism in the US is not dead, and thus faster growth abroad is needed to slash the trade deficit.
So far, apparently, the Germans are still opposed to taking any immediate measures to stimulate their economy. At the OECD meeting, they frustrated American efforts to draft a communiqu'e with firmer wording about the need for greater growth abroad.
One key test of the German attitude occurs today when the policy-setting board of the Bundesbank, Germany's central bank, meets to consider interest rates.
The US would like it to follow the example of the Federal Reserve and the Bank of Japan, which recently lowered discount rates. If Germany did, it would be a second coordinated drop in rates this year by leading economic powers. But the Bundesbank is likely to leave its rate at 3.5 percent, out of concern over rapid money-supply growth and concern that the mark will strengthen further, hurting German exports.
Instead, the Bundesbank is expected to lower a less important rate, the Lombard rate. It is a fee charged commercial banks when they borrow from the central bank using securities as collateral.
Finance Minister Stoltenberg, in the interview here, explained his reluctance to use fiscal or monetary policy to step up German growth. For one thing, he pointed out, West Germany's economy even with no change is expected to grow as rapidly this year as that of any other major industrial nation -- 3.7 percent, according to an IMF forecast.
Second, Germany already lowered taxes at the start of this year. The government doesn't want to endanger the reduction already achieved in its budget deficit with a further immediate tax cut, he said. The combined deficit of the federal and state governments will amount this year to the equivalent of 2 percent of West Germany's total output of goods and services, half the 4 percent or so in the United States.
At a time of rapid growth, he said, the deficit should not be any larger -- ``if possible even lower.''
Stoltenberg indicated that Bonn would decide whether additional stimulative measures are needed, not in April, but ``maybe in October, November,'' when economic and budget prospects for 1987 and '88 are clearer.
The German government's priorities, he went on, are (1) an overhaul of the nation's tax system and (2) further tax cuts -- ``but step by step without endangering the budget consolidation.''
Lower interest rates would be ``undoubtedly desirable,'' Stoltenberg said, but he wants Germany's basic money supply growth back within its target range of 3.5 to 5.5 percent. It has been overshooting that goal slightly in recent months.
Stoltenberg also noted that ``one must not be impatient'' about the impact of the sharp rise in the value of the deutsche mark on trade flows. That exchange-rate shift may take 12 or 15 months to reduce Germany's trade surplus and the US deficit, he said.
Thus Bonn won't take part in international action to boost the mark: ``If it goes up by the market a little bit or goes down by the market a little bit, we wouldn't bother'' to intervene, he said.