A lame-duck German leader sounds off on economic issues

Helmut Schmidt has a deserved reputation for being blunt. The former chancellor of West Germany was sometimes nicknamed ``Schmidt-Schnauze'' at home. That could be translated as Schmidt-the big mouth, although this loses the alliteration. Many Germans admire a speaker who does not restrain his tongue. To American ears, the ex-chancellor comes across as either refreshingly frank or somewhat harsh. Free from office and not even planning to run again as a member of the Bundestag when his term expires, Mr. Schmidt speaks nowadays with great candor. His personal familiarity with many of the world's top leaders adds zest.

Schmidt was in the United States earlier this month to promote a book (``A Grand Strategy for the West,'' Yale University Press) and, among other things, talk to a conference at Bretton Woods, N.H., put on by Putnam International Advisors, a money management group.

Here's something of what he said in his address and an interview:

In regard to the Group of Five meeting of industrial country finance ministers and central bankers Sept. 22, Schmidt says that West Germany should move to expand its economy on its own behalf, not just because the United States requested that action.

``This is none of America's business,'' he says. ``They [the Americans] got themselves into trouble and are trying to get the Europeans and Japanese to rescue them.'' Schmidt maintains that the huge federal deficit in the US has pushed up both interest rates and the value of the dollar, thereby bloating the American trade deficit.

He would like to see a German tax cut that is planned for 1987 advanced to the start of next year, and he would like a bit more monetary ease.

Schmidt expects European nations to intervene only with token amounts to drive down the dollar on foreign-exchange markets, since such intervention contracts their domestic money supply. This would be deflationary.

The former chancellor views the US budget deficit as ``a time bomb,'' because it has forced other nations to keep their interest rates high, because it has prompted trade deficits that are making the US into the world's largest debtor nation, and because these debts may result in world inflation. He figures Congress, unable to cut spending sufficiently, should raise taxes to reduce the deficit.

Speaking of Japan, Schmidt calls for the construction of more apartment houses, other measures to step up growth in the Japanese economy, and an increase in foreign aid. He says the world will not accept indefinitely the huge Japanese trade surpluses. But he believes a large boost in defense spending impossible because of the objections of the South Koreans and the Chinese to a rearmament of their former enemy.

``Americans, not knowing the Japanese or the Chinese, think they can push the Japanese into more defense spending,'' he says. ``This will not happen.''

Mr. Schmidt regards the prospect of an American trade war with Japan as dangerous. The Japanese have long memories, he notes. ``It is very important that the relationship of Japan and the United States is maintained in a style that does not make the Japanese lose face.''

As for China, he says that Deng Xiaoping has transformed ``a revolutionary party into a reformist party. If he prevails, it will be an enormous accomplishment. This is the greatest economic experiment ever undertaken in history. A billion people are participating.''

Schmidt expects the prime beneficiaries of China's shift to a market economy to be the Japanese.

He figures the Chinese will try to remain equidistant from both the US and the Soviet Union. Maintaining that the Chinese don't need allies, he suspects communist China will find it easier to deal with the noncommunist West than the communist Soviet Union.

Europe has a void of leadership, he says. So the leadership of the West falls again to the Americans. ``But sometimes leadership in this country comes out as giving out orders. Leadership is not high command.''

Economic summits, Schmidt says, have become ``TV events,'' with the leaders of the industrial nations making statements to one another so their press secretaries can run out to tell assembled journalists what he or she has stated.

The highest amount of cooperation is among the central bankers of these nations. ``They are the only ones who have kept some common sense.'' In economics, he says, some heads of state don't know what they are talking about.

Schmidt finds any chance for easing tension between Germany and the Soviet bloc dependent on the level of the cold war between Washington and Moscow. The United States, he concludes, is the only nation in the West that can make circumstances, not be governed by them.

Looking at the Soviet Union, Schmidt describes Mikhail S. Gorbachev, the new Communist Party chief, as ``an extraordinary character.'' But he says he does not expect the Soviet leader to make enormous changes in the Soviet Union, as Mr. Deng has done in China.

``He has not prepared his comrades for sweeping changes,'' he says, noting that Gorbachev's policies must be affirmed at a party conference in February. Mr. Gorbachev is calling for more discipline, harder work, but ``there is nothing new in that,'' Schmidt asserts.

Criticizing both the grain embargo of President Carter (``ridiculous'') and the attempt by President Reagan to block a Soviet natural gas pipeline to Western Europe, Schmidt says: ``There is no strategy behind American economic behavior to the Soviet Union.''

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