Treasury Secretary Donald T. Regan, provoked by persistent criticism of high American interest rates by his fellow finance ministers of other major industrial countries, today warned them that lower rates would be "no panacea" for their own economic problems.
Although Regan assured a ministerial meeting of the Organization of Economic Cooperation and Development here that the United States is striving to lower interest rates, he bluntly said that, even if U.S. policy is successful, domestic conditions in other countries could keep interest rates high there.
Moreover, as his fellow ministers listened in dead silence, he added that lower U.S. interest rates would be no assurance that the dollar--which most of them consider to be too high in relation to their own currency--would come down.
He cited, for example, a drop of three percentage points in Treasury bill rates since last November, accompanied by a one-half-point rise during the same period in the dollar against a weighted average of other currencies.
"There was no reply," a smiling Regan later told reporters. Asked if the others were stunned, Regan joked: "Well, just silent--they weren't comatose."
The perplexing problem of high nominal and real U.S. interest rates has been the most visible and contentious issue between the United States and the other 23 countries assembled here for the two-day OECD session. A final communique will be issued Tuesday, camouflaging the differences and focusing instead on the more general objectives of encouraging economic growth and lower inflation, while avoiding protectionism.
However, the divergences in attitude between the Americans, on the one hand, and their European and Asian partners, on the other. was abundantly clear from public and private comments. The differences appear to be deep enough to assure something of a repeat performance at the economic summit among heads of government in Versailles early next month.
The thrust of the European complaint was reflected in a grim report by the OECD secretariat earlier this month, which said, in effect, that the industrial world faces another year of stagnant economic growth, followed only by a "technical" and very slight recovery.
The OECD economists said the upturn will not be durable because of high interest rates, which they blame largely on America's concentration on monetary, as opposed to fiscal, policy. They fear this will shut off any prospect for a boom in investment. The U.S. prognosis, as brought to this session by Regan, is more hopeful.
The main concern in Europe is high unemployment, which now totals 31 million for the entire OECD area--including about 10 million in the United States. What bothers Europe, from conservative West Germany to the welfare-oriented Nordic states to socialist France, is that, since the first oil shock in 1973, there has been virtually no growth in actual jobs. By contrast, 15 million American jobs have been created in the same period.
Policy-making OECD officials, interviewed privately, say that, because European unit costs for labor are so high and because welfare costs are such a big cost of national budgets, there will be little job growth for the rest of this decade unless there is a private investment boom. And with interest rates at current levels, they see little hope on that score.
European fears about high interest rates and about the strength of the dollar in a highly volatile exchange market were evident on every side. "Speaker after speaker brought up high interest rates," Regan said.
For example, Robert Muldoon, prime minister of New Zealand, who was chairman of the OECD meeting, told reporters that "no one in his right mind will invest while the gap between inflation and [nominal] interest rates is as high as 8 percent. If anyone thinks that the majority here feel that high interest rates are not all that bad, that's not correct." Real interest rates in the United States now are between 11 and 12 percent.