German Growth Will not cut U.S. Deficit -Bangemann

Economics Minister Martin Bangemann, who flies to Washington this weekend for high level talks, said boosting West German economic growth would not have any significant effect on the high U.S. Current account deficit.

In a paper prepared ahead of his trip, Bangemann said Bonn’s trading partners had been asking whether West German growth was slowing and whether the Federal Republic should not in the future pursue more strongly expansionary policies.

In the paper Bangemann wrote, “It is not possible to reduce the U.S. Current account deficit by any signficant amount just through more stimulation of the West German economy.”

One U.S. Administration policy maker said in Washington this week that the United States government wanted West Germany and Japan to reduce their interest rates even further to stimulate their economies.

Bangemann said it was clear the high mark, as well as uncertainty about further currency developments, was making companies here cautious about production plans and investments.

While West Germany did not seek exchange rates which unilaterally favoured its exports, it favoured more stability and realistic rates, which corresponded to “fundamentals.”

He welcomed the February “Louvre Agreement” of six industrial nations to stabilise currencies and said, “(We) expect all parties to hold by the accords struck there.” West Germany had fulfilled its pledge of boosting planned tax cuts, he noted.

Despite calls for lower interest rates, Bundesbank Vice-President Helmut Schlesinger has hinted that central bank policy may even have to be tightened.

He wrote in a newspaper article published yesterday that the Bundesbank’s current accommodative stance could not continue in the long term.

During his trip to Washington, which runs from April 26 to 29, Bangemann will meet Secretary of State George Shultz, trade envoy Clayton Yeutter, World Bank President Barber Conable, IMF Managing Director Michel Camdessus and Paul Volcker, Chairman of the Federal Reserve Board.