Europe and the Mighty Dollar

...For although the pound has sunk sharply against the dollar, it has managed to maintain its equilibrium against other foreign currencies...

...Schmidt's fury is widely shared on the Continent, where the loss of what would otherwise be investment capital is strongly felt...

...Nevertheless, many here who look forward to summer have their eyes fixed on the currency markets rather than the barometer...

...With America's trade deficit widening and manufacturing costs in the United States rising, it is felt that the dollar must decline in the near future...

...Just a few years ago, European economists were bemoaning the failure of the U.S., the leader of the Western world, to serve as the "locomotive" pulling their economies along to growth and prosperity...

...Prominent voices on this side of the Atlantic are urging that measures be devised to shield their countries from the damaging impact of the mighty dollar...

...Not that the Europeans are above playing the same game...

...Several governments have actually entertained the notion of launching a counterattack by boosting their own interest rates...

...But it has been bad enough, with parts of the country savaged by the worst blizzards in decades and the shoreline battered by monstrous waves...

...Small wonder, then, that the dollar's ups and downs have become a major ongoing news story that often makes the front pages of London newspapers and is included on the television news shows each night...

...Since the United States is providing a lively market for European goods made desirable by the strong dollar, the discomfort about the American economy is somewhat ironic...

...Rumor even has it that a local theatrical producer, sourly contemplating his commitment to put on what he now fears will be a lemon, has delayed opening the play in London's West End until May in the belief that the flocks of Americans—who traditionally arrive hungry for theater—will keep the show afloat no matter what the critics say about it...

...Reports from the United States say summertime transatlantic charter flights are already heavily booked...

...To further complicate matters, high American interest rates have sustained the overpowering attraction the U.S...

...The ramifications of the dollar's strength, of course, extend far beyond their effect on the British tourist trade...

...And the underlying attraction is the fact that never has the dollar been stronger against the pound sterling...

...In addition, the British are pleased to see that because of the weakened condition of the pound in relation to the dollar, their trade with the United States, which had been ominously slipping, is on the mend...

...Similarly, countries that financed economic development a few years ago by borrowing dollars, rather than other currencies that would have served them as well, find that repayments and interest rates are far more burdensome than would have been the case had they opted instead for sterling, Swiss francs or German marks...

...There is a good reason for the seeming incongruity...

...A government floating in oil revenues, say, or a corporation or individual with excess cash, can earn the best return on that money by depositing it in America's banks or riding the generally upward swing of the American stock market...

...Conventional wisdom among economists here is that the dollar is likely to fall soon, perhaps by June, when the American tourists arrive to savor the inexpensive pleasures of Europe...

...you import it...

...The mighty greenback and the worldwide recession have converted America's export boom of the late 1970s into the bust of the past two years...

...Now the complaint appears to be that the locomotive is pulling too fast, that it's not making appropriate stops along the way, and that the destination is not the place anybody wants to go...

...Perhaps the most obvious example of the dollar's impact involves energy costs...

...If that happened, Prime Minister Margaret Thatcher's long-term program for revitalizing British industry—which has not yet shown any of the promised benefits, and which opposition parties say is a pipedream—could be derailed...

...A1983 trade deficit of $70 billion cost a projected 1.8 million jobs, many of them in manufacturing industries essential to the momentum of the U.S...

...Countries that had hoped their economies would benefit from falling oil prices have found that, with oil payments required to be in dollars, the strong American currency means they must pay more for today's "cheap" oil than they did for the expensive oil of old...

...But the immediate worry in European capitals concerns the steps that might be taken in the United States to confront the reality that the strong dollar has put American exports at a serious disadvantage...

...It is worth about 40 per cent more than it was just a few years ago, and approximately 10 per cent more than at this time last year...

...economy...

...UNEASY PARTNERS Europe and the Mighty Dollar BY NORMAN GELB London The British winter has thus far not been nearly so fierce as the one that closed in like an Iron Maiden around most of North America at Christmas time...

...There has been a sharp increase in the volume of advertisements in American travel magazines touting the pleasures of Britain...

...This recently prompted former West German Chancellor Helmut Schmidt to angrily describe American interest rates as the highest "since the days of Jesus Christ...

...has for overseas investors—particularly given the economic instability and the unpredictability of events in other parts of the globe...

...Officials have blocked any moves of this kind only because they recognize the dangers of strengthening those in Washington who would call for similar protectionism in retaliation...

...Officials at the British Tourist Authority, hoteliers, restaurateurs, indeed all who have something to gain from a bullish tourist trade are waiting in eager anticipation for the vast streams of American visitors expected to descend on the British Isles come June...

...The suggestions being floated include taxing the flight of capital to the United States...

...it is exactly the same forecast that was made at the beginning of 1983...

...He went on to tell Americans attending an international conference of political dignitaries in Brussels, "You don't print money anymore...

...But that is not merely a familiar prognostication...

...They are, at the moment, a vital factor in the economic well-being of many countries in Europe and elsewhere around the world...

...Such a move, however, would reverse the decline in inflation levels that they have systematically plotted and laboriously brought about...

...It is recognized here, as it is everywhere else, that in a Presidential election year bashing the foreigner can be effective politics, and that treaties and assurances to the contrary may be side-stepped or forgotten...

...Norman Gelb is The New Leader's regular correspondent in Great Britain...

...American businessmen seeking to sell abroad find themselves often priced out of the competition...

...Europeans fear that the Reagan Administration and Congress may revive trade protection to lessen the damage done to American industry by cheap imports from countries with far weaker currencies...

...The British, it is true, haven't been as troubled by the international financial situation as most of the Europeans...

...Nevertheless, England is badly in need of investment capital and officials are worried that at some point they may have to raise interest rates to attract it...