The Nation: Europe's Fear of the Shock Waves

Europeans find New York City's problems hard to understand because they cannot imagine a national government on the Continent allowing one of its major cities to go bankrupt. Amid the puzzlement, however, Europeans were deeply disquieted as they read of President Ford's New York policy.

The greatest worry was that default would retard American—and hence international—economic recovery. Said a high West German official: "President Ford obviously does not understand the implications. A bankruptcy would, at the very best, endanger the U.S. economic rebound and most likely erode faith overseas in the American Government's economic seriousness. The question is whether, after a default, the banks will have the money—and the nerve—to provide the loans U.S. business needs to fuel the economic recovery." Warned Kurt Richebacher, general manager of the influential Dresdner Bank: "Default would have a considerable impact abroad on confidence in the U.S."

In London, the Wilson government, which has been counting on an American-led world recovery to help get Britain moving again, was profoundly distressed. If New York defaults, said a high Whitehall official, "it's bound to make American banks less willing to lend, and public authorities less willing to spend." The London Times called Ford's policy "an act of monumental folly." Editorialized the Times: "It is no exaggeration to say that for the financial system of the United States, for the reputation of that country, and for the rest of the non-Communist industrial world, it could be a disaster. That any President should contemplate taking the risks involved indicates that Mr. Ford has not grown in stature with office."

Many European branches of U.S. banks received calls from nervous clients fearful that their deposits are in danger. "They think that a couple of New York banks are going down the drain," said one banking source. Added a French banker: "We had thought the dollar would strengthen into next year, but now because of New York we foresee a weakening dollar through next spring." The apprehensive mood was caught by the French financial daily Les Echos: "If a chain of bankruptcies of [U.S.] cities takes place, the credibility of the dollar itself will be under full attack around the world, and the consequences could be incalculable."