Despite long-standing Carter administration concerns that economically powerful West Germany was not doing enough to help pull the West out of a lingering recession, Treasury Secretary W. Michael Blumenthal said here today he was willing to accept Bonn's judgement that it was doing its share.
Blumenthal spoke with newsmen here after a nearly two-hour meeting with West German Chancellor Helmut Schmidt and on a day that saw the U.S. dollar slip to a record postwar low on West German money markets.
The continuing nosedive of the dollar - which has lost almost ten per cent in value compared to the West German mark in the last twelve months - is a continuing source of concern here because it makes West German exports more expansive and because it shakes Western confidence.
Both Blumenthal and German Finance Minister Hans Apel, however, reiterated that federal banks would intervene only to 'smooth out irregular movements" of the dollar but would not interfere with the "fundamental forces" of the free market that have been pushing the dollar down.
Schmidt is understood to have expressed both his personal concern over the dollar's decline. He is reported to have said that what Bonn fears most is a precipitous drop in the value of the dollar that would give America's allies no time to adjust to it.
A few months ago, the Treasury Secretary had been the target of angry German criticism for remarks that were widely interpreted here as an attempt by the Treasury to "talk" the dollar down to gain an advantage for American exports and to help cut the huge U.S. balance of payments deficit.
At a private dinner here tonight, however, Blumenthal told top West German business and financial leaders that the U.S. was determined to reduce that $30 billion deficit in a "responsible manner" and not by "depreciating the dollar."
U.S. officials say that the Germans now seem convinced that the United States is not following any deliberate policy of dollar depreciation.
Blumenthal said the problem was one of too much dependence on imported oil. He also said the U.S. had, in fact, done a better job of expanding its domestic economy than most other countries and thus was importing more goods than other trading partners.
He warned that the strength of the dollar should be evaluated in terms of the enormous overall size and strength of the U.S. economy. Blumenthal predicted that rising agricultural sales next year, improved economies in Western countries that buy from the U.S., and the flow of Alaskan oil would contribute sometime in late 1978 toward a reduction of the deficit.
Despite his earlier problems with the Germans. Blumenthal, according to both U.S. and German sources, got along well with Schmidt today. That may be because the U.S. has stopped pressing the Germans very hard - as they did early this year - to go beyond their cautious spending approach and help stimulate not only their own economy but the rest of Western Europe as well.
"We would like to see the maximum noninflationary growth that can be achieved by countries enjoying strong economies like the Federal Republic of Germany. Blumenthal told newsmen, "but we are going to have to leave it up to the decision makers here."
Schmidt and Apel have both made it clear they feel Germany is doing all it can. Apel today said the Bonn government would not take any more actions to stimulate consumer and business investment here for at least another six to eight months until they see how new measures set in motion this year work out.
Bonn has approved a package of tax cuts, business credits, depreciation allowances and other public spending measures that officials estimate will pump about eight billion extra into the German economy next year.
Asked today if he was satisfied with the German expansion program, Blumenthal said, "If that is their judgement of the maximum noninflationary growth that can be achieved, then I will be glad to accept it and all of us can hope for the best."
Though Blumenthal's preference would have been for Bonn to give the German economy a bigger boost, the United States is not in a good position to press that point.
Otherwise, there are no major differences between the two countries, high sources said tonight. They added that there was also agreement that several difficult years lie ahead for the world's economy.
The German economy, although it is the powerhouse of Western Europe, has hit a prolonged slump. Real growth for this year, once predicted at 5 per cent, is now estimated at perhaps 3.5 per cent. Administration economists had said all along that Bonn's forecasts were too high and as matters turned out, they were correct.
Next year, the Schmidt government claims its new expansion package will boost growth to 4.5 per cent. But even the five top German economic institutes are skeptical. They recently issued a joint forecast that growth would remain at 3 per cent and that make enough difference to push the figure much higher.
The German offorts, however, did go some way toward defusing mostly U.S. and British pressure on them to pump more money into circulation.
Bonn argues that its imports are rising faster than its exports that the strength of the German currency is a defacto aid to other countries in that it makes German goods more expensive and those of its allies cheaper, and that it also has a historical right to fear inflation.
There is another factor at work here too. The outbreak of terrorism in the past six months has further inhibited business investment and expansion that was already in the doldrums.
Others argue, however, that the German inflation rate is only 3.9 per cent, the lowest of any major industrial nation. They feel the country, could easily handle something higher, while also tackling unemployment, which lingers at close to one million and contains a potentially explosive element of very high youth unemployment.
Bonn is the last stop on Blumenthal's seven-nation trip, which also took him through the Middle East, Persian Gulf and Italy.