Looking The Other Way

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In fact, the apparent slowdown in the process started to rankle foreign leaders, who fear that a U.S. recession would be contagious. British Prime Minister Margaret Thatcher sent Reagan a personal letter, urging him to take swift action in the budget summit. A story in the London Evening Standard carried the headline YANKEE DOODLE DITHERERS.

The budget talks seemed to trip on party lines as soon as the 15 delegates began to discuss particulars. With good reason. The politicians are getting no clear mandate from their constituents. In a Los Angeles Times poll of 2,463 adults, 69% of those interviewed agreed that the budget deficit is a serious problem, but an almost equal number, 64%, opposed raising taxes to close it. Moreover, they offered little guidance on how to trim spending. Only 32% wanted to reduce defense outlays, and just 23% approved cutbacks in domestic programs.

Each day the summiteers seemed to grow gloomier as they emerged from their secret sessions in Room H-137 of the Capitol, where they huddled over blue tablecloths and scribbled their estimates on yellow legal pads. The President caught flak from Democrats for his alleged failure to get involved in the process, but on Friday he stepped in. Meeting at the White House with Republican leaders, he lent tacit support to a proposal by House Minority Leader Robert Michel of Illinois that would cut the deficit by $30 billion next year and $45.5 billion in 1989.

Reagan's encouragement was notable because the plan carries mild doses of the two things he abhors: tax increases ($8 billion in fiscal 1988) and defense cuts ($13 billion below the Administration's proposed budget). But those ingredients increase the proposal's palatability for Democrats. "It's a strong contribution. I'm optimistic," said William Gray of Pennsylvania, chairman of the House Budget Committee. The committee's deadline for agreeing on a plan is Nov. 20, when $23 billion in arbitrary cuts, split roughly fifty- fifty between defense and domestic programs, would go into effect under the Gramm-Rudman law.

The Administration achieved a different sort of cooperation earlier in the week, when the West German central bank announced it would, among other things, cut its so-called Lombard rate, which it charges on loans to other German banks, from 5% to 4.5%. While mostly symbolic, that interest-rate cut is the first tiny concession in months to increasing U.S. pressure on the Germans to allow their economy to expand more rapidly. But Germany will have to make much broader cuts in interest rates to bring about a significant acceleration of growth.

Faster growth in both West Germany and Japan is essential if the U.S. is to curb its trade deficit, which reached $156 billion last year. But while Japan has agreed to cut taxes and interest rates and to boost domestic spending, West Germany, which posted a $52 billion trade surplus last year, has been less cooperative. Says an irate European central-bank official: "The Germans are becoming unbearably smug about their economic performance. It's not just the Americans who are getting angry. I think we are all mad at them, especially the French."