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NEWS ANALYSIS : In Europe, Nationalism Still Reigns : Community: Despite unity moves in the EC, France and Germany look out for No. 1.


BRUSSELS — They are supposed to be the cement for the European Community, the countries that put Europe's long-term benefit ahead of their own short-term concerns.

But right now, France and Germany are giving the rest of Europe a lesson in looking out for No. 1: When national interests clash with the good of Europe as a whole, national interests still prevail.

The French government, intimidated by protesting farmers, is threatening to block or at least delay an agreement on agricultural trade reached last Friday by the United States and the 12-nation EC. And Germany's central bank is clinging to its policy of high interest rates, although they are aggravating the turmoil on Europe's currency markets and contributing to lackluster economic growth all over Europe and beyond.

"There is a real confusion over where Europe is going," said Alan Stoga, an international economist with Kissinger Associates in New York. The Cold War's end and the reunification of Germany have erased the rules that once defined Western Europe's relations with the rest of the world, he said, and new rules have yet to be written.

For America, Europe's divisions are of more than merely academic interest. Most analysts believe both a trade accord and lower European interest rates would boost U.S. exports. A trade agreement would open new markets to American products; lower rates, by boosting European economic growth, would increase Europe's demand for what the United States has to sell.

More than that, said a U.S. official in Brussels, the United States needs a reliable EC, one that can deliver on the deals it makes. If the French block the agriculture accord, he said, Americans who bargain with the EC in the future will wonder if its negotiators really speak for individual community members.

Instead, EC members are going their own way, driven by the unique circumstances they face at home. France, Europe's biggest farm exporter, has an extremely powerful farm lobby; Germany, its economy overheated by reunification, has special cause to worry about inflation.

Trade is the issue that has Americans gnashing their teeth. Because the EC has clear authority to conduct trade negotiations for its 12 members, the senior U.S. official said, France can dictate policy for all of the EC--unless the rest of the community can beat the French into submission.

The trade accord that sent French farmers to the barricades was on two levels.

To head off retaliatory U.S. tariffs on other European goods, the EC agreed to reduce land devoted to the production of soybeans and other oilseeds. The United States had complained that EC subsidies to oilseed growers had deprived American exporters of sales in Europe. More broadly, the EC agreed to reduce subsidized agricultural exports by 21%. If all goes well, this will become part of a wide-ranging new treaty being negotiated by 108 nations to liberalize international trade.

France will probably have no further chance to block the oilseed accord. But at the risk of alienating not only its EC partners but also the other 96 parties to the international trade talks, it could still prevent the EC from accepting any international trade pact that cut Europe's subsidized farm exports.

On interest rates, it is Germany that is in the unaccustomed role of Europe's maverick. But these are unprecedented times for the German economy.

German reunification in 1990 touched off a two-year boom that set loose severe inflationary pressures. Now the boom is giving way to what many economists expect to become a recession. But Germany's inflation rate is remaining at a very un-German rate of nearly 4%.

For Germany's central bank, the Bundesbank, which is even more independent of its government than is the U.S. Federal Reserve, the paramount goals are controlling inflation and ensuring the buying power of the German mark.

In today's German economy, that has meant keeping short-term interest rates near 9%, about 6 points higher than in the United States. The Bundesbank's governing council, under mounting pressure to relax its grip on rates, will meet Thursday to review its policy, but no change is being signaled.

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