Williamsburg outlook: US view likely to prevail

At next weekend's Western economic summit at Williamsburg, Va., America's major partners want to give President Reagan much the same message he's been hearing from Congress.

They'll be asking him to reduce those prospective $200 billion US budget deficits that threaten to keep interest rates high, stunt recovery, and perpetuate unemployment throughout the Western economic world.

As it is, Mr. Reagan's refusal to raise taxes enough to offset higher defense spending gives the WesterwP-// ers a signal, too - that Reagan's economic policy is basically set. Pulling and hauling over policy at Williamsburg could lead to a repeat of last year's divisive summit outcome at Versailles.

But with the possible exception of France, the economic powers represented at Williamsburg - Britain, Canada, West Germany, Japan, Italy - appear resigned to getting through the summit with as little conflict as possible. They're hardly arriving with unrealistic hopes. Two governments, Britain and Italy, are preoccupied with national elections. All participating governments have been putting out advance word that they hope East-West trade issues - raised by Reagan at Ottawa in 1981, and Versailles last June - will be muted.

''A summit focuses on the US president,'' observes Henry D. Owen, veteran summit organizer, or ''sherpa.'' Other heads of state tend to follow the American president's lead and respond. Reagan has power to influence or shut off any negotiations by virtue of the US's commanding economic role and by the very nature of summits, which have no formal agenda or procedures.

''What other nations really would like is action on the out-year deficits,'' Mr. Owen says. But they realize ''basFing the US'' would do little good. French President Francois Mitterrand may try to challenge the US President's point of view on issues like the strong dollar, US deficits and interest rates, and the need to intervene in world currency markets. ''Mitterrand may calculate he will fail to change Reagan's point of view, then go home and say, 'I've tried cooperation,' and turn to protectionism,'' Owen says.

Such a scenario for open dispute at the summit worries the White House. Reagan aides have raised the prospect of agreeing to a study of another international monetary conference, such as the 1944 Bretton Woods, N.H., session that set up a fixed currency exchange system. The Bretton Woods system lasted until 1971, when the link between dollars and gold was broken by President Nixon and the current floating-rate exchange system developed.

The status of the Reagan monetary study proposal could be keyed to French reactions, administration officials svggest.

Extending the fledgling world recovery from the US to other nations is the basic challenge facing the summiters, says Lawrence B. Krause, Brookings Institution economist.

''The world economy has gone through the longest recession since the Great Depression,'' Mr. Krause says. ''We do have a recovery this year. What's important is continuing the recovery and extending it to other nations.''

Leading economic indexes are rising rapidly in all but one of the seven nations meeting at Williamsburg, according to the Conference Board. The exception is Japan, whose prime minister Yasuhiro Nakasone, terms the world economic picture ''grim.''

The United States leads the recovery pace with an annual 11 percent rate in the Conference Board study, prepared by the Center for International Business Cycle Research. Canada follows with 9 percent, and West Germany, the United Kingdom, France, and Italy in the 4 to 5 percent range. Japan's economy is declining at a 2 percent annual rate, according to the study.

Code words for the summit, recurring in advance statements and remarks, are terms like ''sustainable recovery.'' Fear of reigniting inflation, thus precipitating another clampdown and recession, figures strongly in the policies of the current British, West German, and American governments. Nonetheless, jobs and faster recovery remain paramount concerns even for those staunch Reagan administration allies.

''Unemployment is the main problem,'' observes a West German official. Chancellor Helmut Kohl has made it a priority since he took office last October.

Only the US is likely to get much relief from joblessness from the current rate of world recovery. The US recovery pace could mean a drop of 1 percent to 1 .5 percent a year in unemployment, Krause of Brookings estimates. For other nations, like Germany, Japan, and the United Kingdom, the current recovery pace could mean little or no relief from unemployment, and in France unemployment could rise.

Nonetheless, the Reagan point of view that recovery should be gradual, sustainable, and noninflationary is expected to prevail. ''We expect from the summit a signal to the world business community that Western economic policies will promote recovery consistent with steady growth,'' says one European economist. ''Last year at summit time, Europe was depressed over how to get out of the slump. The mood has improved - but investment confidence has to be helped by a Western policy statement.''

The summiters have a host of economic worries. ''Interest rates and the dollar are for us like the third petroleum crisis,'' says one European official.

Washington will be busy with summit preparations this week. President Reagan will meet with the Secretaries of State, the Treasury, and Agriculture on Wednesday. On Thursday, he meets with Italy Prime Minister Amintore Fanfani, Friday with Japanese Prime Minister Yasuhiro Nakasone, and on Saturday at Williamsburg he will have a bilateral meeting with French President Mitterrand.