GERMANY is practising persuasion in European politics.It pleaded the case for the Soviet Union at the G-7 summit in London July 15-17. It helped steer the European Community (EC) away from a policy of unity-above-all-else in Yugoslavia. It is orchestrating a slowdown toward European monetary union, much to the relief of Britain. But the German leadership can go only as far as its budget will allow. The enormous cost of reunification is hitting home and having a direct impact on Bonn's foreign policy decisions. Take the case of aid to the Soviet Union. German Chancellor Helmut Kohl made a significant diplomatic effort to prepare his friend, President Mikhail Gorbachev, for the summit with the seven leaders of the industrialized world. Ten days before the London meeting, he visited the Soviet leader in Kiev. In London, Mr. Kohl went the extra mile for Mr. Gorbachev, expressing confidence in the Soviet leader's reform intentions. Kohl also supported a bid to raise the limit on loans to the Soviets from the European Bank for Reconstruction and Development. The effort was rejected by the United States and Japan. Yet in London, Kohl's support for Gorbachev more or less ended with diplomacy. The chancellor spent much of the summit emphasizing the need for global burden sharing vis-a-vis aid to the Soviets and East Europeans. He said Germany alone provides over 40 percent of the total foreign aid to central and eastern Europe. Although Bonn is enthusiastic about providing technical assistance to the Soviets, it is no wonder it shrinks from making any more significant financial sacrifices. The mood among German taxpayers is sour. On July 1, they were hit with higher taxes to pay for reunification. Prices for gasoline, telephone calls, and welfare benefits went up, and taxpayers absorbed a one-year, 7.5 percent income-tax increase. The cover of the influential news magazine, "Der Spiegel," featured an illustration of a German taxpayer being wrung dry and the words: "How much more?" Last week, the opposition Social Democrats demanded that Kohl retrieve at least 4 to 5 billion deutsche marks (DM) in overpayments to the US for the Gulf war. They based their demand on an independent report in the US that estimated that the war cost the US only half of what Washington claims. In total, Bonn paid the US 11 billion DM ($6.29 billion) toward the war in the Gulf. The actual economic situation, however, is perhaps more worrisome than the mood of taxpayers or the demands of the political opposition. This year's budget deficit is estimated at 67 billion DM, compared to 20 billion DM just two years ago. The situation is grave enough to bring sharp criticism from the EC. Borrowing for reunification, as well as steadily rising inflation in Germany, will eventually cause a further rise in German interest rates. This will in turn put pressure on other European countries to raise rates and thus hurt their chances of recovering from recession, EC officials say. The Frankfurter Allgemeine Zeitung, a leading conservative daily newspaper, has gone as far as proclaiming that Germany is no longer the economic "locomotive" of Europe. This is one reason for Bonn's interest in slowing the drive toward a single European currency and a European central bank. Yes, Kohl wants to mend fences with the leadership in London. But a key motivation is that a too-hasty drive toward a single currency could hurt the strong deutsche mark. German leaders see no sense in further weakening an economy that is supposed to pull along the rest of Europe.