A cranky Congress makes summit tougher for Reagan

Failure of the Congress to pass a budget resolution poses a severe setback for President Reagan on the eve of his first major diplomatic tour of Europe.

Mr. Reagan could confront abroad a serious discounting of his domestic leadership. And the disruptive rumblings of a conservative resurgence among his backers at home--seen in his party's budget revolt--could also break out on the strategic arms front, members of the administration say. They add that this would tear at the fragile ''moderate'' Reagan image crafted in recent months by the President's handlers in preparation for his European foray.

Reagan wanted to cross the Atlantic with two things in his pocket: a broadly drawn nuclear arms reduction plan to stem Western fears raised by his saber-rattling; and a budget agreement with Congress.

A budget pact would ease worries among America's economic partners about US deficits and high interest rates. The Europeans see these as dragging their own economies into recession.

The President appears to have a firm foundation laid on the issue of nuclear weapons--at least for summitry purposes--with his announcement of a date for beginning Strategic Arms Reduction Treaty (START) talks with the Soviets, as well as his offer to continue holding to SALT I and SALT II terms as an interim negotiating step.

But the budget is another matter.

Defeat of Reagan's budget plan--as well as every other budget proposal in sight, including the majority Democrats'--in the US House of Representatives dismayed many in the White House and leaders in other capitals.

But not all members of the administration were unhappy to see the President's rebuff on the House floor, when conservative Republicans withheld support for the President's package.

These Republicans wanted to get the President's attention by calling for a harder line on economic issues, and by sending a signal that even on strategic arms questions there could be trouble if the President veered from his longtime face-the-Russians-down stance. They see the President as a captive of his moderate staff, pushing for budget and tax compromise at home and arms accommodation abroad. They talk of a coming White House shake-up. They would prefer the President fight Congress, if necessary, with a string of vetoes right up to the November election.

Republican presidents traditionally have trouble with their party's right. But such hints of conservative resurgence are troubling for the White House at this moment, when Reagan faces 10 days of economic and military summitry.

In effect, Reagan has already told the other industrial powers that, despite their objections, he doesn't intend to veer from his primary economic thrust--to fight inflation with a tight money policy and stimulate the economy with tax cuts. He is going to the Versailles summit with a hard line, holding to the status quo in administration policy.

The prospect of a budget compromise with Congress as an impetus for a drop in interest rates was a convenient alternative to a policy change for discussion at Versailles.

However, members of the administration, international economists, and economic officials abroad have their doubts about whether even a budget compromise would have much effect in lowering the cost of borrowing money.

If the economic options are tough--with no easy solutions to the mix of high interest rates, recession, and protectionism--then the issue of leadership style becomes all the more crucial for steering the partnership through tough times ahead, European officials in Washington say.

The White House has pushed for a firm-but-moderate balance in the President's image, but Europeans remain ambivalent about whether the firmness in moderation will prevail.

''It will be difficult for Reagan to wash out his past image of saber-rattler ,'' says one European involved in the summit preparations. ''And he's much more stubborn on domestic economic affairs than he has lately acknowledged. There could be more trouble ahead.''

The prospect of a set-to between Reagan and Congress at home would hold implications for the President's approach abroad, as the international community watches to see whether his confrontational or accommodating tendencies prevail.

The President's faltering budget reflects a more deeply seated problem for his summit negotiations--his ability to deliver, given the constraints of the US political system.

''The main aspect of this budget situation is not just the deficits, per se, and their effects on capital markets, but the really more profound implications for our ability to govern this country,'' contends Rudolf Penner, American Enterprise Institute economist.

''When you see the Congress running around with its various budgets, and anyone looking at them with the naked eye can't see huge differences, and yet so far at least they haven't gotten together, it is disconcerting for the implications of the whole political system.''