The recent minisummit between Treasury Secretary James A. Baker III and West German Finance Minister Gerhard Stoltenberg, we are assured, suggests that international economic cooperation, which fell to a low point with the October stock market crash, is back on track.
Well, at least Baker and Stoltenberg again are talking to each other instead of past each other, as was the case last fall. But as West German central bank president Karl Otto Poehl told me a few days ago in Frankfurt, not too much stock should be placed in these meetings. They have only a limited use, he said, and expectations of results can be overdone.
The fact is that relations between Washington and Bonn are awkward, despite last week's show of cordiality. West German as well as American sources confirm that the Baker-Stoltenberg meeting was staged almost exclusively for the benefit of the West German finance chief, who is in political trouble at home.
Stoltenberg until recently was considered Chancellor Helmut Kohl's heir-apparent. But his political star has dimmed because of a scandal that erupted in his home state of Schleswig-Holstein, where he is party chairman of the Christian Democratic Union. Eventually, the scandal resulted in the suicide of Uwe Barschel, state premier of Schleswig-Holstein. As CDU party boss in the state, Stoltenberg is tagged with blame or credit for what goes on there.
Moreover, there has been a consumer rebellion over Stoltenberg's tax-reform and tax-withholding proposals. Critics of the conservative Kohl-Stoltenberg government complain that the tax program favors the rich. So in the past several months, Stoltenberg's prestige has suffered both on the political and economic fronts, and he is no longer considered the crown prince.
To be sure, Stoltenberg can stay on as finance minister as long as Kohl is in office. But in respect to the West German-American dialogue on economic issues -- which starts and sputters, in contrast to the smooth relationships between Tokyo and Washington -- the problem is that "Stoltenberg really doesn't know how to deal with Baker, and we Germans as a group don't know how to talk to America," said a Frankfurt businessman. "We do not understand each other."
American officials are convinced that the Germans are not pulling their weight in responding to the global need for economic expansion, although a Reagan administration official said that Baker went out of his way in his talks with Stoltenberg to express a sympathetic understanding of the political difficulties in boosting West Germany's budget deficit.
In the West German view, Baker should have been more understanding last fall. Then, they say, he was demanding more in the way of economic stimulus than could be forthcoming in a short period of time. Beyond that, the West Germans complain that only cosmetic repairs have been done on the U.S. budget deficit, and that despite lip service to exchange-rate "stability," America still is prone to follow a policy of "benign neglect" of the dollar. Poehl worries that the Fed may send the "wrong signal" to financial markets if it eased monetary policy last Tuesday, when the Federal Open Market Committee met.
But the most serious complaint I heard at the West German central bank is that Washington doesn't fully understand the West German system. For example, complete control over monetary policy is exercised by the Bundesbank (central bank) in Frankfurt, not by the federal republic government in Bonn. Like the Federal Reserve, the Bundesbank is independent -- only more so.
To cite one example, the Bundesbank not only establishes interest-rate policy (as does the Fed), but alone decides on intervention to manipulate exchange rates. The Fed takes orders on intervention from the Treasury.
And under the West German system, Poehl as head of the Bundesbank -- not Stoltenberg -- is the governor for the International Monetary Fund. For the United States, the Treasury secretary is the governor for the IMF as well as the World Bank. That distinction, which divides power between Poehl and Stoltenberg, is often overlooked by top Treasury officials.
In contrast to Stoltenberg's diminished political clout at the moment, Poehl has just been named to a new eight-year term, even though Kohl was anxious to get rid of him because he's a member of the opposition Social Democratic Party. There simply was no credible alternative to the experienced Poehl: It was a situation somewhat analagous to Reagan's reluctant appointment of Paul A. Volcker, a nominal Democrat, to a second term at the Fed in 1983.
The rivalry between Poehl and Stoltenberg, well-known in West Germany, doesn't get much play here. As the head of Europe's largest central bank (and with Volcker gone, the senior member of the central bankers' "club"), Poehl is a force to be reckoned with in West Germany and on the international economic scene.
His views, therefore, gain importance. And what Poehl stresses to visitors is that deeper reductions in America's trade deficit aren't likely to be accomplished by a further decline in the dollar, but rather by changes in savings and spending ratios in the deficit and surplus countries. That could mean a more sympathetic ear to the push from Bonn's trading partners for West German expansion. But it is also a prescription of tough medicine for America: a reduction in consumer spending that ultimately would lower the living standards here.