In a fresh show of irritation with the United States -- this time with U.S. economy policy -- West German Chancellor Helmut Schmidt twice recently let slip remarks that were critical of high U.S. interest rates, calling the current levels "destructive" and "absolutely unacceptable" for Western Europe's economies.
Schmidt was promptly scolded for voicing such digruntlement by his own country's press, which, accross a broad spectrum of polticial opinion, warned against pinning the blame for West Germany's economic difficulties on outside bogeymen, American or otherwise.
But Schmidt's comments merely echoed a widespread dissatisfaction with tight U.S. credit policies in political and business circles here. This feeling is part of an ambivalent attitude toward the Reagan administration's economic program: while applauding the new presidend's tough attack on inflation, West Germans worry that it will add to burdens here and frustrate hopes for a modest economic recovery this year.
Such uneasiness is understandable in view of what happened to the relationship between the dollar and the West German mark since Reagan's election. The mark was worth 53 cents in November; by mid-February it was worth only 44 cents.
Part of the reason for this was indeed the pegging of U.S. interest rates at roughly twice West German rates. Because investors can earn higher returns from dollar assets, they sold mark holdings and thus depressed the value of the West German currency.
As the world's second reserve currency, the mark automatically reacts more sharply to dollar fluctuations than other currencies included in the European Monetary System. In recent weeks the dollar's strength has forced the West German Federal Bank to spend billions of dollard in currency markets to shore up the mark -- and that costly intervention led some analysts to predict a devaluation of the mark inside the European Monetary System.
Instead, West German central bankers recently took additional steps to discourage speculation against the mark and effectively raised West Germany's own interest rates to try to narrow the difference with U.S. rates. But such wrenching upward of interest rates threatens West Germany's already weakened economy.
Much of the blame for the mark's struggle lies right here in West Germany.
Continued heavy dependence on costly imported oil resulted last year in a current accounts deficit of $14 billion, the largest in the Western world, and this damaged international confidence in West Germany's currency. Related doubts about Bonn's commitment to develop nuclear energy have only worsened matters. Friday's disclosure that January had produced the worst West German trade deficit since 1950 was one more indication.
On top of these economic worries, political tensions in Eastern Europe and the Middle East -- regions in which West Germany has extensive investments -- have chipped away faith in the mark.
Ironically, what Washington is doing now to choke inflation is what Schmidt and other West German experts had advised for months. International confidence in Reagan's leadership has been on factor reflected in the rise of the dollar against the mark -- the so-called "Reagan bonus."
The problem for Bonn at the moment is that the domestic economy is less able to sustain the strain resulting from American anit-inflation moves.
A combination chiefly of expensive imported oil and intense business competition for West German products in both domestic and foreign markets has broght on a recession, with Bonn predicting a loss of up to 1 percent in West Germany's gross national product this year. Unemployment has already passed by several hundred thousand what last year had been the psychological hurdle of 1 million jobless.
All the usual tools for engineering a recovery appear to be of little avail:
federal spending is constrained by keen political sensitivity to Bonn's deficit; foreign markets, particularly the Middle East, do not hold the same promise for West German exports that they did during the last recession here in 1975, and the West German central bank cannot lower interest rates to encourage business investments without weakening the mark further.
The scenario most Bonn officials favor for a recovery is this: West Germany's historically low inflation rate (it was still only 5.5 percent in 1980) and the basic competitiveness of West German industry will, by later this year, spark an upswing in the economy and restore international confidence in the mark.
This seems, in fact, to be the only scenario. Schmidt's advisers appear to hold no view more imaginative, nor does this one appear to be grounded in anything more than hope.
In the long run, West Germany's economic health will depend on some fundamental -- and politically torturous -- adjustments. It will depend on funding other energy sources to replace expensive imported oil. It will depend on spurring lagging productivity to keep competitive what is now one of the highest paid work forces in the industrialized world. It will also depend on Bonn's ability to pay for the extensive network of social supports it has constructed, or alternatively, do away with some of them.
But the Bonn Coalition government, beset now by bickering within and between the Social Democratic and Free Democratic parties, is hardly in position to reach consensus on these highly controversial issues. Consequently, high U.S. interest rates have become a convenient target -- and an outlet for airing the general distress felt here.
"I think," Schmidt said in an interview in late February with the French business publication Les Echos, "that the current interest rate levels in America and several other lands are destructive. In the long run, they are aboslutely unacceptable if we want to keep to the aim of full employment." He added that he did not want to criticize the Americans.
Earlier, he said in a radio interview with the Suddeutscher Rundfunk: "We still need detailed talks with our American friends on the fact that we here in Europe cannot endure American interest rates remaining at the 20 percent level. That forces us to keep our interest rates at a level inappropriate to our economic and cyclical situation."
The West German press jumped on Schmidt for behavior unbecoming a West German chancellor. The Frankfurter Rundschau, a left-of-center dialy usually sympathetic to Schmidt, called his remarks "embarrassing" because they recalled the chancellor's tendency to lecture others as a schoolmaster, but that was when Bonn's economy was worth emulating.
The conservative daily Die Welt charged Schmidt with "boorish defamation," while the independent Frankfurter Allgemeine said that any hopes that a U.S.-led drop in interest rates would help West Germany out of its troubles were unrealistic.
The paper noted further that Karl Otto Pohl, the chief of the central bank, had also pointed to the painful impact on the West German economy of high U.S. interest rates during a visit last week to the United States. But it said the banker had wisely refrained from criticizing U.S. policy.