Confounding the skeptics who scoff at cumbersome meetings like this, the big-seven industrial democracies have achieved a splendid result, described by a diplomat as "the banalization of summits." Had this not become the "cemetery summit," it would have been conspicuously normal, with the U.S. president promising to do something he lacks the power to do alone (this time, cut the budget substantially) and with the other leaders praying privately that their public demand (this time, for a substantial weakening of the dollar) not be satisfied too soon.
While U.S. growth last year was an astonishing 6.8 percent, Germany, France, Britain and Italy averaged just 2.3 percent combined. And the performance would have been even worse had the strong dollar not driven up French exprts to the United States 50 percent, and German exports 40 percent.
Since 1970 the United States has produced more jobs every day than Western Europe has produced in the decade and a half. While there has been a net loss of jobs in the Common Market, the United States has been creating as many jobs (26 million) as there are workers in Europe's largest economy, West Germany. Taxes, federal and other, take less than one-third of America's GNP, but nearly half in Western Europe.
Reagan doubtless believes, probably rightly, that the time is ripe for Europeans to profit from the example of Reaganomics, meaning stimulative tax cuts. But the sobering example of his deficits has made European leaders wary of trusting tax cuts to be sufficiently stimulative, given the inelastic spending demands of their welfare states.
For a generation, all seven governments have acted as though their problems were produced by economic cycles and therefore the collective task was to modulate the cycles. The U.S. role was to serve as the Great Alibi. The severity of economic cycles was invariably blamed to some extent on the excessive tightness or looseness of U.S. fiscal and monetary policies, and on the deplorable strength or deplorable weakness of the dol- lar.
Today there is broad recognition that what David Stockman says about the United States is true of the other welfare states as well: The problem lies not in the path of the economy but in the structure of policy, especially concerning social entitle- ments.
Many European leaders believe it is time for U.S. taxes to rise and European taxes to fall. But history offers no precedent for a U.S. increase. Stockman notes that in the two decades prior to 1980, during the Cold War and the Vietnam war, during Great Society spending and Ford-Carter moderation, the federal-tax burden averaged 18.9 percent of GNP, and today is just a fraction of a percentage point higher, although Reagan has presided over an increase in the size of the federal government (measured as a percentage of GNP).
The strong dollar, caused in part by government borrowing, is, like a hungry tiger, difficult to dismount from. But the U.S. expansion is slowing, markedly. The economy is driven by consumer demand, and the strong dollar, by making imports cheap is diverting demand abroad. The growth of production is decreasing proportional to the growth of demand. The decline of the dollar will be, effectively, an increase in U.S. demand for domestic production.
But the decline should be slow enough to allow European economies to ease off their heavy dependence on exports to the United States. This is especially necessary now that the United States wants the European economy stimulated to diminish its dependence on the U.S. economy performing as a locomotive, pulling the world.
On the eve of the summit, economic indicators showed a slowing of the growth that is the president's real hope for substantial deficit reduction. Unless Reaganomics has repealed the business cycle, the U.S. expansion is not immortal. The terrifying fact is that the deficit is unprecedented not only in its size but in its context. It has grown during a robust recovery, with the economy near full employment.
With policy generating $200 billion deficits during an expansion, a contraction could cause the economy to implode, collapsing in on itself beneath the weight of interest rates that are rising to keep attracting foreign funds to finance U.S. government borrowing. The alternative -- that Americans should pay now for the way they live now -- is, apparently, unthinkable.
This prospect of deficit-driven implosion is the ghost haunting the Bonn banquet. Fortunately, summits offer presidents pleasant respites, tranquil moments of diverting ceremony, such as laying a wreath . . . no, never mind.