The Economy: Money: The Dangers of the U.S. Hard Line

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THE issues in the international monetary crisis are too complex, and the divisions between the U.S. on one side and Europe and Japan on the other too deep, for anyone to have expected a full resolution to come out of last week's series of meetings among international moneymen. There had been hope, though, that at least some hard bargaining could start. Instead, the key meeting, a midweek gathering in London of finance chiefs of the world's ten richest industrialized nations, deteriorated into a testy confrontation that left the officials unable even to agree on what they will talk about when they convene again in Washington on Saturday. The impasse deepened the danger that President Nixon's monetary initiatives will produce not the much needed overhaul of the world financial system that he aimed at, but a trade war that will pit the U.S. against much of the rest of the world.

Financial Theatrics. The London meeting of the so-called Group of Ten* marked the debut of U.S. Treasury Secretary John Connally as an international financial negotiator, and he put on a rare show of obstinacy. In one sentence, he managed to describe a key U.S. demand as both "stunning" and "very conservative"; he then added that it is "not subject to negotiations or trading." At one point, he asked the Europeans what they were prepared to do in order to get the U.S. to drop its 10% surcharge on foreign imports, then theatrically cupped his hand to his ear and announced: "I don't hear any suggestions." When France's Valery Giscard d'Estaing asked a series of moderately worded questions about the U.S. view of the role of gold in the international monetary system, Connally replied: "I am not prepared to give an answer to those questions here."

The Texan's performance left many European officials still puzzled as to what the U.S. really wants right now. The Nixon Administration's eventual goals, of course, are both clear and laudable: a new financial system with more flexible exchange rates based on a frank recognition that the dollar is no longer worth its stated value in many foreign currencies, and a revision of world trade rules that would enable the U.S. to increase its exports and wipe out its balance of payments deficit. That is a bold program; the difficulty is that no one knows quite how to accomplish it. The danger is that, having seized the initiative in getting negotiations started, Nixon and more particularly Connally will push other nations too far too fast down a road that is still dark.

Certainly, what the Europeans heard from Connally in London seemed to them too arrogant to be believed. Connally's one specific, and supposedly nonnegotiable, demand was that the other nations help the U.S. achieve a $13 billion-a-year swing in its trade balance, from a heavy deficit to a comfortable surplus. How? Presumably by some combination of upward revaluation of major European currencies and the Japanese yen, the removal of barriers against U.S. goods—which are higher in Japan than in Europe—and the assumption by other nations of more of the cost of maintaining U.S. military forces overseas. How to achieve such a combination, however, Connally did not say. His position seemed to be that it is up to the foreigners to figure out some way to meet the U.S. demand.