Following are excerpts from prepared remarks yesterday by President Reagan to the graduating class of Eureka College, Ill.:

. . . . In about a month I will meet in Europe with the leaders of nations who are our closest friends and allies. At Versailles, leaders of the industrial powers of the world will seek better ways to meet today's economic challenges. In Bonn I will join my colleagues from the Atlantic Alliance nations to renew those ties which have been the foundation of western, free-world defense for 37 years. There will also be meetings in Rome and London.

These meetings are significant for a simple yet important reason. Our own nation's fate is directly linked to that of our sister democracies in western Europe. The values for which American and all democratic nations stand represent the culmination of western culture . . . .

There is a single, major issue in our partnership which will underlie the discussions that I will have with European leaders: The future of western relations with the Soviet Union. How should we deal with the Soviet Union in the years ahead? What framework should guide our conduct and policies toward it? What can we realistically expect from a world power of such deep fears, hostilities and external ambitions?

Western Unity

I believe the unity of the West is the foundation for any successful relationship with the East. Without western unity, we will squander our energies in bickering while the Soviets continue as they please. With unity, we have the strength to moderate Soviet behavior. We have done so in the past and we can do so again.

Our challenge is to establish a framework in which sound East-West relations will endure. I am optimistic we can build a more constructive relationship with the Soviet Union. To do so, however, we must understand the nature of the Soviet system and the lessons of the past.

The Soviet Union is a huge empire ruled by an elite that holds all power and all privilege. They hold it tightly because--as we have seen in Poland--they fear what might happen if even the smallest amount of control slips from their grasp. They fear the infectiousness of even a little freedom, and because of this in many ways their system has failed. The Soviet empire is faltering because rigid, centralized control has destroyed incentives for innovation, efficiency and individual achievement. Spiritually, there is a sense of malaise and resentment.

But in the midst of social and economic problems, the Soviet dictatorship has forged the largest armed forces in the world. It has done so by preempting the human needs of its people, and, in the end, this course will undermine the foundations of the Soviet system. Harry Truman was right when he said of the Soviets that, "When you try to conquer other people or extend yourself over the vast areas, you cannot win in the long run . . . ."

'Lessons of the Past'

Yet Soviet aggressiveness has grown as Soviet military power has increased. To compensate, we must learn from the lessons of the past. When the West has stood firm and unified, the Soviet Union has taken heed. For 35 years western Europe has lived free despite the shadow of Soviet military might. Through unity, you will remember from your modern history courses, the West secured the withdrawal of occupation forces from Austria and the recognition of its rights in Berlin.

Other western policies have not been successful. East-West trade was expanded in the hope of providing incentives for Soviet restraint, but the Soviets exploited the benefits of trade without moderating their behavior. Despite a decade of ambitious arms control efforts, the Soviet buildup continues. And despite its signature of the Helsinki agreements on human rights, the Soviet Union has not relaxed its hold on its own people or those of Eastern Europe.

During the 1970s some of us forgot the warning of President Kennedy who said that the Soviets "have offered to trade us an apple for an orchard. We don't do that in this country." Well, we came perilously close to doing just that.

If East-West relations in Europe have yielded disappointment, detente outside of Europe has yielded a severe disillusionment for those who expected a moderation of Soviet behavior. The Soviet Union continues to support Vietnam in the occupation of Kampuchea and its massive military presence in Laos. It is engaged in a war of aggression against Afghanistan. Soviet proxy forces have brought instability and conflict to Africa and Central America.

An Important Phase

We are now approaching an extremely important phase in East-West relations as the current Soviet leadership is succeeded by a new generation. Both the current and the new Soviet leadership should realize aggressive policies will meet a firm western response.

On the other hand, a Soviet leadership devoted to improving its peoples' lives, rather than expanding its armed conquests, will find a sympathetic partner in the West. The West will respond with expanded trade and other forms of cooperation. But all this depends on Soviet actions. Standing in the Athenian marketplace 2,000 years ago, Demosthenes said: "What sane man would let another man's words rather than his deeds proclaim who is at peace and who is at war with him?"

Peace is not the absence of conflict, but the ability to cope with conflict by peaceful means. I believe we can cope. I believe that the West can fashion a realistic, durable policy that will protect our interests and keep the peace, not just for this generation, but for your children and grandchildren.

I believe such a policy consists of five points: military balance, economic security, regional stability, arms reduction, and dialogue. These are the means by which we can seek peace with the Soviet Union in the years ahead. Today, I want to set out this five-point program to guide the future of East-West relations.

A Military Balance

First, a sound East-West military balance is absolutely essential. Last week, NATO published a comprehensive comparison of its forces with those of the Warsaw Pact. Its message is clear: During the past decade, the Soviet Union has built up its forces across the board. During the same period the defense expenditures of the United States declined in real terms. The United States has already undertaken steps to recover from that decade of neglect. And I should add that the expenditures of our European allies have increased slowly but steadily, something we often fail to recognize here at home.

The second point on which we must reach consensus with our allies deals with economic security. Consultations are under way among western nations on the transfer of militarily significant technology and the extension of financial credits to the East, as well as the question of energy dependence on the East. We recognize that some of our allies' economic requirements are distinct from our own. But the Soviets must not have access to western technology with military applications, and we must not subsidize the Soviet economy. The Soviet Union must make the difficult choices brought on by its military budgets and economic shortcomings.

The third element is regional stability with peaceful change. Last year in a speech in Philadelphia and in the summit meetings in Cancun, I outlined the basic American plan to assist the developing world. These principles for economic development remain the foundation of our approach. They represent no threat to the Soviet Union. Yet in many areas of the developing world we find that Soviet arms and Soviet-supported troops are attempting to destabilize societies and extend Moscow's influence.

Peace in Afghanistan

High on our agenda must be progress toward peace in Afghanistan. The United States is prepared to engage in a serious effort to negotiate an end to the conflict caused by the Soviet invasion of that country. We are ready to cooperate in an international effort to resolve this problem, to secure a full Soviet withdrawal from Afghanistan, and to ensure self-determination for the Afghan people.

In Southern Africa, working closely with our western allies and the African states, we have made real progress toward independence for Namibia. These negotiations, if successful, will result in peaceful and secure conditions throughout Southern Africa. The simultaneous withdrawal of Cuban forces from Angola is essential to achieving Namibian independence, as well as creating long-range prospects for peace in the region.

Central America also has become a dangerous point of tension in East-West relations. The Soviet Union cannot escape responsibility for the violence and suffering in the region caused by its support for Cuban activities in Central America, and its accelerated transfer of advanced military equipment to Cuba.

However, it was in Eastern Europe that the hopes of the 1970s were greatest, and it is there that they have been most bitterly disappointed. There was hope that the people of Poland could develop a free society. But the Soviet Union has refused to allow the people of Poland to decide their own fate, just as it refused to allow the people of Hungary to decide theirs in 1956, or the people of Czechoslovakia in 1968.

If martial law in Poland is lifted, if all the political prisoners are released, and if a dialogue is restored with the Solidarity Union, the United States is prepared to join in a program of economic support. Water cannons and clubs against the Polish people are hardly the kind of dialogue that gives us hope. It is up to the Soviets and their client regimes to show good faith by concrete actions.

Arms Reductions

The fourth point is arms reductions. I know that this weighs heavily on many of your minds . . . .

I do not doubt that the Soviet people, and, yes, the Soviet leaders have an overriding interest in preventing the use of nuclear weapons. The Soviet Union within the memory of its leaders has known the devastation of total conventional war, and knows that nuclear war would be even more calamitous. Yet, so far, the Soviet Union has used arms control negotiations primarily as an instrument to restrict U.S. defense programs and, in conjunction with their own arms buildup, as a means to enhance Soviet power and prestige.

Unfortunately, for some time suspicions have grown that the Soviet Union has not been living up to its obligations under existing arms control treaties. There is conclusive evidence the Soviet Union has provided toxins to the Laotians and Vietnamese for use against defenseless villagers in Southeast Asia. And the Soviets themselves are employing chemical weapons on the freedom fighters in Afghanistan.

We must establish firm criteria for arms control in the 1980s. If we are to secure genuine and lasting restraint on Soviet military programs through arms control, we must seek agreements which are verifiable, equitable, and militarily significant. Agreements that provide only the appearance of arms control breed dangerous illusions.

Last November, I committed the United States to seek significant reductions on nuclear and conventional forces.

In Geneva, we have since proposed limits on U.S. and Soviet intermediate range missiles, including the complete elimination of the most threatening system on both sides.

In Vienna, we are negotiating, together with our allies, the reductions of conventional forces in Europe.

In the 40-nation Committee on Disarmament, the United States seeks a total ban on all chemical weapons.

Complex and Difficult

Since the first days of my administration, we have been working on our approach to the crucial issue of strategic arms control negotiations with the Soviet Union. The study and analysis required have been complex and difficult. It had to be undertaken deliberately, throroughly, and correctly. We have laid a solid basis for these negotiations, we are consulting with congressional leaders and with our allies, and we are now ready to proceed.

The main threat to peace posed by nuclear weapons today is the growing instability of the nuclear balance. This is due to the increasingly destructive potential of the massive Soviet buildup in its ballistic missile force.

Therefore, our goal is to enhance deterrence and achieve stability through significant reductions in the most destabilizing nuclear systems, ballistic missiles, and especially intercontinental ballistic missiles, while maintaining a nuclear capability sufficient to deter conflict, underwrite our national security and meet our commitment to allies and friends.

For the immediate future, I am asking my START strategic arms reduction talks negotiating team to propose to their Soviet counterparts a practical, phased reduction plan. The focus of our efforts will be to reduce significantly the most destabilizing systems--ballistic missiles--the number of warheads they carry, and their overall destructive potential.

At the end of the first phase of the START reductions, I expect ballistic missile warheads--the most serious threat we face--to be reduced to equal ceilings at least a third below current levels. To enhance stability, I would ask that no more than half of those warheads be land-based. I hope that these warhead reductions, as well as significant reductions in missiles themselves, could be achieved as rapidly as possible.

In a second phase, we will seek to achieve an equal ceiling on other elements of our strategic nuclear forces, including limits on ballistic missile throw-weight at less than current American levels. In both phases, we shall insist on verification procedures to insure compliance with the agreement.

The monumental task of reducing and reshaping our strategic forces to enhance stability will take many years of concentrated effort. But I believe that it will be possible to reduce the risks of war by removing the instabilities that now exist and by dismantling the nuclear menace.

Letter to Brezhnev

I have written to President Leonid I. Brezhnev and directed Secretary of State Alexander M. Haig to approach the Soviet government concerning the initiation of formal negotiations on the reduction of strategic nuclear arms--START--at the earliest opportunity. We hope negotiations will begin by the end of June.

We will negotiate seriously, in good faith, and carefully consider all proposals made by the Soviet Union. If they approach these negotiations in the same spirit, I am confident that together we can achieve an agreement of enduring value that reduces the number of nuclear weapons, halts the growth in strategic forces, and opens the way to even more far-reaching steps in the future.

I hope the commencement today will also mark the commencement of a new era--in both senses of the word a new start--toward a more peaceful, more secure world.

The fifth and final point I propose for East-West relations is dialogue. I have always believed that problems can be solved when people talk to each other instead of about each other. I have already expressed my own desire to meet with President Brezhnev in New York next month.

If this cannot be done, I would hope we could arrange a future meeting where positive results can be anticipated. And when we sit down, I will tell President Brezhnev that the United States is ready to build a new understanding based upon the principles I have outlined today. I will tell him that his government and his people have nothing to fear from the United States. The free nations living at peace in the world community can vouch for the fact that we seek only harmony. And I will ask President Brezhnev why our two nations cannot practice mutual retraint. Why can't our peoples enjoy the benefits that would flow from real cooperation? Why can't we reduce the number of horrendous weapons? . . . .