Britain intends to block a German-French plan to stop currency gyrations until London is assured that it will promote rather than constrict economic growth, it was learned yesterday.
Authoritative sources here disclosed that Premier James Callaghan, who cautiously voiced British coolness at a Common Market summit in Bremen, still favors a scheme to damp down currency fluctuations. But his government, convinced that it has the support of the U.S. will resist the secret draft drawn up by Helmut Schmidt, the German chancellor and Valery Giscard D'Estaing, the French President. The draft is said to omit what London and Washington regard as a crucial element.
This is a commitment that strong economies like Germany shall be compelled to take domestic action to reduce the surpluses in their foreign trade just as weaker economies like Italy must now act to slash their deficits.
This principle of "symmetrical obligation" promotes economic output and employment in the London and Washington view. At present, the burden falls almost entirely on the weaker, deficit nation. It traditionally "solves" its trade deficit by cutting back on demand and increasing unemployment.
Reports from the Bremen Summit of Nine market leaders are stressing an "agreement" to work towards a new monetary order in Europe.But the Schmidt-Giscard blueprint, according to top level sources here, will not be adopted until it includes what London regards as the decisive and absent stress on growth.
The Common Market discussion of these matters is carried on in highly technical terms over currency bands, pooling of reserves and the like. But the outcome could have serious consequences for prosperity - incomes and jobs - not only in Western Europe but also the United States.
The crucial question, as the Callaghan government sees it, is what kind of control.
Officials here say that the finance ministers of the nine countries agreed at Luxembourg last month on key principles to govern any currency stablizing plan. One was that the scheme would be backed by a common pool of reserves, drawing on the large stocks of hard currency piled up by the Germans everywhere and the British through North Sea oil.
Another is the rule of symmetrical obligation, a rule that would oblige the Germans to stimulate their economy when they are in surplus just as the Italians or French must deflate when in deficit.
The Schmidt-Giscard text, it is said, recognizes the first rule but not the second.
The British are confident that their opposition to the first draft of the German-French plan will find support elsewhere. Small nations now attched to the German-dominated snake, for example, are believed to fear anything that will jeopardize their arrangement. This is because Germany is their chief trading partner, so neither their domestic price level nor their exporters' business can stand a sharp variation from the mark.
London doubts that either Schmidt or Giscard are fully backed by their own finance officials. The German central bank, even more independent and powerful than the U.S. Federal Reserve, has always been cool towards contributing German reserves to an international pool.