Bonn should withstand American arm twisting, US economist says
Boston — West Germany is now the world's largest exporting nation. Both Germany and Japan have larger national output per person in dollars than the United States. To economist Allen H. Meltzer, those are signs of the rightness of the steady, long-term German and Japanese economic policies, the wrongness of American ``stop-go'' economic policies. Dr. Meltzer, a Carnegie-Mellon University professor, likens the situation to Aesop's fable of the tortoise and the hare, with the US regarded as the hare that loses the race.
West Germans, he notes, are enjoying rising living standards, prices that are falling slightly, a stronger currency, a solidly growing economy, and a much-reduced budget deficit.
``Their policy has worked out better for them than ours has for us,'' he says.
Thus he would not advise West German Finance Minister Gerhard Stoltenberg to alter German economic policies to please US Treasury Secretary James Baker III when the two meet tomorrow in Kiel, West Germany.
On his trip to Europe, Mr. Baker will first join a regularly scheduled session of American and Common Market ministers today in Brussels. Then he will continue his travels to meet with the finance ministers of Britain, France, and possibly Italy, as well as Germany.
These subsequent meetings are labeled as ``private.'' So officials in Washington and Bonn will not specify the topics of their discussions. But Mr. Baker has been urging Germany to reduce its interest rates to help stimulate that country's domestic economic growth. Otherwise, he has warned, the US dollar may have to weaken further to remedy the massive American trade deficit. Commerce Department numbers released Wednesday show a surge in imports from four newly industrialized countries in Asia boosted the US merchandise trade deficit to a record $37.67 in the third quarter. That was up 5.6 percent from the second quarter figure.
Should Baker raise the idea of economic stimulus again, he will probably get a nein from Mr. Stoltenberg. With national elections coming up Jan. 25, the German government will be most reluctant to change policy tracks suddenly.
What happens after that will more likely depend on economic events in Germany than on pleas from Baker. The latest statistics show a slowdown in growth to 1 percent in the third quarter from the second quarter after adjustment for inflation and seasonal factors. National output has risen 2.4 percent from the same quarter a year earlier.
One reason for the slower pace was a 2.5 percent drop in goods and services because of the stronger German mark.
With the nation's money supply overshooting its target range, however, the Germans appear confident their recovery will continue at a reasonable pace. One indication of policy thinking will appear next Thursday when the Bundesbank sets monetary targets for next year.
Contrary to Professor Meltzer, C.Fred Bergsten of the Institute for International Economics thinks it would be ``highly desirable'' for the Germans to stimulate their economy further.
But Meltzer has less confidence in the ability of governments to manipulate the economic cycle. He is more concerned that the burst of new money being pumped into both the US and West German economy could give eventual rebirth to inflation.
There's another significant topic for Baker and Stoltenberg to talk about in their meeting. When Japan and the US reached a currency accord early last month, they in effect agreed on a ``target zone'' for the dollar-yen exchange rate of about 150 to 165 yen to the dollar.
Now French Finance Minister Edouard Balladur would like that arrangement extended to the European Monetary System.
Should the Germans go along with that idea, most of the world's major noncommunist industrial nations could intervene more regularly in the foreign-exchange markets to prevent wide currency swings.
``It would mean stabilization of exchange rates,'' says Mr. Bergsten.