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From Abroad, U.S. Scored on Deficits : West Germany Also Takes Heat for Stock Crash

November 03, 1987

The short-term effects of the stock market crash on other countries varies from profound to puny, but a sampling of world opinion reveals a like-mindedness about the causes of the crash. Most place blame first on the U.S. budget and trade deficits and an overvalued stock market and, second, on West Germany's decision to increase interest rates. A country-by-country survey follows.

Great Britain

LONDON--There is widespread agreement in London that blame for the worldwide plunge in stocks lies squarely on the United States, with West Germany getting additional blame for failing to do anything to help bail out the Americans.

But blaming the United States makes for special problems in Britain because it has a conservative government with policies identified with those of President Reagan.

The government of Prime Minister Margaret Thatcher has been embarrassed by a stock market fall that was worse than any other in Europe, even worse than that in New York. On top of this, it came as the government was about to sell off to private investors shares valued at 7.2 billion pounds in the nationalized British Petroleum company.

In a speech last Monday, Chancellor of the Exchequer Nigel Lawson said the U.S. budget and trade deficits, plus the growing American indebtedness to foreigners, had triggered the worldwide crash. But he also criticized West Germany's Bundesbank--the central bank--for its failure to ease the world situation by cutting interest rates.

Lawson said governments now know that, unlike what they did in 1929, they must not precipitate a depression by turning to protectionism or "undue monetary tightening."

"I believe that lesson has been widely learned," Lawson said, "but it would certainly be helpful if the German monetary authorities were to show more obvious awareness of this."

Lawson said the decline in the markets was neither unexpected nor unprecedented. "I believe that we can turn what has happened to positive advantage," he said.


PARIS--As in Britain, there is near unanimous agreement in Paris that the United States is to blame for the sharp, worldwide decline in stocks and that West Germany must share some of the blame.

And France, like Britain, has a problem in assessing blame because it has a conservative government with policies that have been likened to President Reagan's.

Prime Minister Jacques Chirac, a conservative, described himself as "reasonably optimistic" in a radio interview last Tuesday, but his remarks were ridiculed by critics. The leftist daily Liberation said many economists could not help but think of Herbert Hoover saying after the crash of 1929 that prosperity was just around the corner.

The strong fall in stock prices may have delivered a final, crippling blow to Chirac's hopes to win the presidency in 1988.

Most polls show that Chirac has been an unpopular prime minister, but privatization--his program to sell government corporations to private investors--has been popular. The program drew many small French investors into the market for the first time. Now they are finding their paper profits heavily reduced and, in most cases, turned into a loss.

Chirac said his privatization program would continue. "It is a tranquil revolution and will continue tranquilly," he said. Some analysts interpreted this to mean that the program would be slowed. In fact, plans to sell the stock of the government defense contractor Matra to the public were delayed indefinitely. And Finance Minister Edouard Balladur announced that the government would hold up trading in the new shares of Suez, a financing company privatized on Oct. 5.

President Francois Mitterrand, a Socialist who is favored to win reelection if he runs, criticized the entire free market approach of the conservative government. Mitterrand said the crash was "tolling the bell for a nullity of a system and it is necessary to organize a new one capable of assuring an environment for entrepreneurs that is stable enough for them to forecast, create and work."

West Germany

BONN--In Germany, three factors are blamed for the crash on stock markets around the world: the U.S. budget deficit, the U.S. trade imbalance and a Bundesbank decision to raise interest rates shortly before "Black Monday."

Franz Josef Strauss, the premier of Bavaria and leader of the Christian Social Union, said "Reagonomics have failed, but (President) Reagan lacks the insight and power to change his policy and/or tell his Americans to tighten their belts."

Strauss said: "There are indeed instruments to stop this crisis, if the responsible officials know how to handle them. A misfortune is the terrible weakness in the leadership of Ronald Reagan."

Finance Minister Gerhard Stoltenberg said that what is needed is "quick agreement in the United States on reducing the budget deficit."

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