Treasury Secretary Donald T. Regan, acknowledging that most European countries are disturbed about high U.S. interest rates, said yesterday that this country will continue to pursue a tough monetary policy because "you cannot get inflation under control without having high interest rates." But he did offer the hope that "this is a temporary phenomenon, it will pass."
In general, he sought to assure Europe that the United States is sensitive to the impact its economic policies have on Europe. "After all," he said, "we know that the dollar is a reserve currency, and we know that we have to be responsible in the way that we handle the dollar."
At a news conference following a meeting with Gaston Thorn, president of the European Communities Commission, Regan said that the high level of interest rates here is the "most obvious" of "trouble spots" to be discussed at a seven-nation economic summit in Ottawa beginning next Sunday.
But in direct response to European complaints about American policy -- including those voiced by Thorn in Brussels last week -- Regan pointed to insistence by the Europeans themselves at the Venice summit in 1980 that the United States bring inflation under control.
"We are determined to get inflation under control," Regan said. "This is one of the main features of President Reagan's economic package. You cannot get inflation under control without having high interest rates. This is one of the side-effects. In saying that, I hope you notice that I'm not saying that high interest rates are a weapon that the United States is using against its partners or anything else. It's a result of supply and demand for money."
When pressed for comment on the European complaint that monetary policy would not have to be so tight if the Reagan administration was not pressing its big tax cut, Reagan said that even if there is no tax cut, monetary policy could not be eased. His rationale was that the $280 billion in tax cuts through fiscal 1984, if not allowed "to stay in the private sector," would be consumed by additional federal expenditures, "and never be applied to reducing the federal debt."
Although Regan stood firm agains any change in U.S. economic policy, he held out an olive branch to other summit partners by expressing sympathy with the special problems most European nations are having with youth unemployment. He also made a point of sidestepping any potential controversy with the Socialist government of French President Francois Mitterrand.
Acknowledging that Mitterrand is pursuing a policy to "re-flate" the French economy, while the United States still lists inflation control as its top priority, Regan said: "Each country has to do what it feels is best." He also passed up an opportunity to be critical of Mitterrand's plans for nationalizing certain French industries.
On the other hand, he said directly that the United States will urge France and other nations offering extra-generous interest subsidies to their exporting industries to "cool it," because "in the long run, each one of us has to outdo the other, and the effect is a trade war over interest rates, and that doesn't do anybody any good."
Thorn, who also met with Reagan late yesterday, spoke in diplomatic terms in a question-and-answer period following a National Press Club speech. Thorn said he did not blame the United States for European economic difficulties, and "we share your viewpoint" that the U.S. must fight inflation.
But in an oblique reference to expected U.S. pressure at Ottawa to limit commerce with the Soviet Bloc in strategic and high technology items, he added that "Europe cannot separate economics from politics, nor separate politics from security. We hope you feel the same. The major problem is that what may be good for you may be a problem for us."