The high interest rates that prevail in the United States present the rest of the world with very serious economic problems. I would argue that they present America's own foreign and defense policies with very serious problems, too.
If the evils of inflation and unemployment in Europe cannot be reduced in the next three years, NATO could become almost an empty shell. If international interest rates are not halved in the same time, the difficulties of the third world can only increase. And the world banking system could be brought close to collapse.
Now I know that many readers will consider these propositions hopelessly exaggerated. But if so, I would urge them to reconsider. Calmly and carefully.
Throughout Western Europe, employment and unemployment are now the big political issues. On this I am sure almost every commentator would agree. Inflation, wages, and government spending are the next-biggest issues. Can any of these be handled successfully while American interest rates remain at their present height? I would argue, no.
Look what's happening to the pound sterling. Britain has sought to maintain lower interest rates than the US as part of its policy to contain inflation, although the cost of living here is still rising at almost twice the rate that the US is experiencing. These lower rates are being forced upward. As they rise costs will rise, investment be reduced, and unemployment increased.
Should the trend continue, a government of the hard left would very likely take over here in four years' time. Because Britain has not a two-party system but a three-party political setup, it may need only a 39 percent vote in an election to produce a change of government. Labour here already has a 39 percent hold on electoral opinion, according to the polls. A Labour victory in, say, 1988 would result in a hard-left government. That is because Labour's moderates have left to form the Social Democratic Party.
Few experts believe that even Neil Kinnock would remain as Labour leader after an election victory. As with the Greater London Council, where Londoners voted a moderate Labour Party into power, the hard left would put one of its own people in the driver's seat. The hard left is anti-American, anti-NATO, antimissiles, anti-EC, anticapitalist, and anti-Parliament.
Now this may sound wild. But I think it would be generally agreed here that it is possible.
The hard left now runs all the major unions in Britain. The National Union of Mineworkers, whose strike has caused so much distress, is run by an ex-Communist (Arthur Scargill) and two card-carrying Communists. Even the British Civil Service will now be represented on the Council of the Trades Union Congress by an official Communist. Hard-left local councils now run two dozen local town and city councils in England and Wales and have recently agreed to defy the central government and to spend illegally on social projects money that they do not have.
Yes, a hard-left takeover by 1988 is perfectly possible.
A political takeover in the rest of Western Europe is less likely, simply because most of Europe operates elections by proportional representation. This tends to concentrate governments around the center. But nobody can say what the effect of four years more of high unemployment and high inflation would do to the social and economic life of the European Community.
Now, nobody would pretend either that America's high interest rates are to blame for all this. Or that they are the only or the major factor in Europe's problems. But few over here would argue against the proposition that recovery will be possible in Europe - full recovery, with more jobs and stable prices - only if and when rates of interest fall markedly.m
Quite possibly the Common Agricultural Policy will dissolve in a kind of chaos if interest rates remain as high as they are now. It certainly won't thrive!
If there are influential economists anywhere, particularly anywhere in the US , who believe Europe can recover on a diet of high interest rates, they should speak up now. Tell Europe how to do it. Otherwise America's foreign and defense policies will indeed face intractable new problems in the next two or three years.
It is not scaremongering to say that even the Atlantic Alliance could be imperiled.