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Trend of the economy

If the United States and Europe truly are on a "collision course" over economic policy, next month's summit meeting at Ottawa would seem to be an ideal place to chart a fresh course.

Or is it?

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"It's tempting to think," said a senior US official, "that when the great men sit down, they can change things. They can't, very much."

This man, having participated in all six of the summits that bring together presidents and prime ministers of seven Western powers, takes a sober view of what the Ottawa session can accomplish.

"In the first place," he says, "four of the leaders are new on the scene -- Reagan [US], mitterrand [France], Suzuki [Japan], and Spadolini or someone else from Italy."

Only West German Chancellor Helmut Schmidt, British Prime Minister Margaret Thatcher, and Canadian Prime minister Pierre trudeau are relatively old hands at the summit process.

"Beyond that," said the American official, "two of the countries -- France and the United States -- are on radically new policy courses."

French policies under Socialist President Francois Mitterrand, whatever they may mean to Frenchmen, may turn out to have relatively little impact internationally. The same is not true of what President Reagan is doing in the United States.

The logic may be hard for Americans to follow, but it works like this: Reagan and the Federal Reserve Board, by reining in the money supply, send interest rates sky-high.

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The US dollar glitters like gold to foreign money managers, who see money to be made by plunging into dollar investments. To keep investment capital at home , European central bankers pump up their own interest rates.

Many European firms stop borrowing at exorbitant rates. Business slows down, and people -- lots of them -- are laid off.

"To put it in perspective," said a top European diplomat centrally involved in the whole problem, "European unemployment traditionally has been 1 percent or less, when so- called full employment in the US was measured at 4.5 to 5 percent.

"Now Europe's employment is running at 8 percent and climbing -- equivalent in social impact," said the diplomat, "to a US jobless rate of 13 percent or higher."

Put that way, one can understand why Europeans are unhappy over what this diplomat called Mr. Reagan's "theological" reliance on monetary police to reduce inflation.

Rubbing salt in the wound are assertions by top officials of the US Treasury -- now a monetarist stronghold -- that Washington will not intervene in currency markets except when events are cataclysmic. Europeans are left feeling there may be no American intervention to keep the dollar from rising and their own currencies from sinking, even when Europe manifestly is struggling with an unemployment crisis.

American officials stress that high interest rates are having similar effects in the US, curbing economic growth and causing unemployment to rise. "Yes," retorts a senior French official, "but Americans voted Reagan in. We did not."

Some Europeans fear that the whole fabric of postwar transatlantic cooperation in economic and monetary fields may unravel. They may exaggerate, because of their deep concern over domestic unemployment.

Restless young people, unable to find jobs or to plan rewarding careers, are challenging the social and political order in nations traditionally as phlegmatic as Switzerland and West Germany.

Barring a swift drop in US interest rates, this is the mood -- exaggerated or not -- in which European leaders approach their July 20-21 meeting with Reagan in Ottawa.

This year's summit, at least, should be spared the kind of energy crisis that engulfed previous summit get-togethers of the Western world's most powerful leaders. Conservation, economic recession, and high Saudi oil output combine to produce a forecast of stable petroleum prices.

Earlier summit meetings -- beginning at Rambouillet, France, in 1975, followed by Puerto Rico, London, Bonn, Tokyo, and Venice -- could do little to soften the economic devastation visited on the world by a jump in the price of oil from $3 a barrel to $35 in eight years.

Presidents and prime ministers at the summit gave political directives to their bureaucracies at home. But the tidal waves of the oil shocks of 1973-74 and 1979 largely wrecked coherent planning.

This year the problem is not a new surge in oil prices, but opposing US and European views on how to cope with the residue of those oil shocks, notably inflation and unemployment.

Robert D. Hormats, US assistant secretary of state, cautions that the Ottawa summit -- attended by several leaders newly arrived at the governmental helm -- is a step toward bridging the transatlantic gap, but not a solution in itself.

A key European ambassador in Washington put it this way:

"The best result we [Europeans] can hope for from Ottawa is awareness -- an acknowledged awareness -- on the part of the Reagan people that their policies do affect other nations and that this should be taken into account. So fa r, we find no such awareness."

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