Strong dollar pinches Europe
Paris — ''Eight francs to the dollar!'' moaned Beatrice, a waitress in a French cafe here. ''It's just too much to accept.'' Her cry of disbelief and anger has echoed throughout Europe this week as the American currency has surged to records, bursting through the 8 franc barrier for the first time and hitting a nine-year high of 2.68 against the German mark.
With analysts expecting the dollar to stay strong, Europeans from Beatrice to top government officials are worried that its strength is undermining their economic well-being.
''The European countries are the principal victims of high interest rates in the United States and of the rise of the dollar,'' French Finance Minister Jacques Delors complained this week. ''How can the Americans call for solidarity from their allies in the diplomatic and political arena if they plunge Europe into a still deeper crisis?''
For Beatrice, the strong dollar means not only the end of a dream to visit the US, but also higher prices for many essential purchases. Because oil imports are priced in dollars, gasoline that now costs a little more than 41/2 francs a liter is expected to rise in the coming months to more than 5 francs a liter.
For Mr. Delors, the dollar's strength imperils France's austerity program. Higher import prices for raw materials spur an already-high inflation and offset any expected advantages in export competitiveness. And the economies of other nations such as Spain and Italy are hurt, as paying for imports will get more difficult.
The French government has already increased taxes and slashed spending in an effort to cut the country's trade gap from about 100 to 60 billion francs and inflation from about 10 percent to 8 percent this year. But this plan was built on a dollar exchange rate of 7.4 francs.
In West Germany, with low inflation and a trade surplus, the dollar's strength has forced the central bank to raise interest rates to support the mark and keep inflation under control. Higher interest rates will reduce investment, perhaps choking off the fragile German economic recovery.
''German interest rates have risen substantially since May, when the dollar began its dramatic rise,'' said J. Paul Horne, chief economist for Europe for Smith Barney, Harris Upham & Co. ''The higher rates discourage consumption and investment and very definitely threaten the German recovery.''
The Europeans have long called on the Reagan administration to intervene in the currency markets to halt the rise of the dollar. Mr. Reagan finally agreed in May to intervene when markets become disorderly.
So this week, the Federal Reserve Bank joined the central banks of West Germany, Switzerland, France, and Japan in dumping an unspecified, but apparently whopping, amount of dollars on the market. This kept the dollar from rising any further, but it did not lead to a significant drop in the value of the American currency.
This leaves the Europeans dissatisfied. For the dollar to fall, they argue, American interest rates must decrease. And for this to happen, they say, the Fed must loosen up its tight monetary policies and the federal budget deficit must be reduced. Their argument, in short, is that the deficit keeps interest rates up, inducing foreigners to invest in dollars.
Independent analysts here agree that high US interest rates are a key reason for the dollar's strength. But they also point to weaknesses in European economies, especially France's, as important reasons for the currency disparities.
While the US economy seems to be recovering, European economies are stagnating or at best growing only modestly. Investors fear political instability. West Germany is bracing for a ''hot autumn'' of protests as the installation date for the first new NATO missiles approaches. And more unrest is expected in France as the austerity plan bites.
The exception to this recipe for continued dollar strength and European currency weakness is Britain. There, high interest rates have combined with political stability, a local oil base, and encouraging economic signs to keep the pound's parity with the dollar relatively steady.