Conflicting Goals

The economies of the Western nations have been steadily drawn together since the end of World War II by such devices as the World Bank, the International Monetary Fund, the Common Market and countless little meetings among world bankers. Last week, as 130 bankers from 14 nations assembled in Vienna's baroque Palais Schwarzenberg for the annual international conference of the American Bankers Association, some major signs of discord and conflict came to the surface. Said one top U.S. economic policymaker: "There's a tendency to see the divisive factors in the Atlantic alliance as strictly political. Actually, some of the worst problems are economic."

Imbalance & Interest. The alliance faces two basic economic problems: Europe is wrestling with persistent inflation, and the U.S. is fighting a pernicious international payments imbalance and gold outflow. These two problems captured the attention of the meeting, which included almost everybody who is anybody among the world's money managers--from IMF Managing Director Pierre-Paul Schweitzer and Deutsche Bank Chief Hermann Abs to Morgan Guaranty Chairman Henry C. Alexander and the U.S.'s Gardner Ackley, a member of the President's Council of Economic Advisers. The more they talked, the more obvious became their conflicting goals. Nearly every important measure that Europeans take to check inflation tends to aggravate the U.S. balance-of-payments problem.

Higher interest rates, which have the effect of curbing demand, are the main weapon that Europeans are using against inflation. Already this year, the central banks of Britain, West Germany and Switzerland have increased rates; last week delegates in Vienna predicted further boosts before long by Britain, Italy and The Netherlands. Europe's high and rising rates tempt many big bank depositors--including some oil-rich Middle Eastern sheiks and Latin American strongmen--to shift their funds from the U.S. to Europe. Though U.S. Treasury Secretary Douglas Dillon reported that "U.S. international payments so far this year have been in approximate balance," he expects the U.S. to do less well as the year goes on, particularly if the European interest rates keep going up.

Oddly enough, the U.S. also will do less well if the Europeans succeed in tamping their inflation. Europe's rising prices have made U.S. goods more competitive in many world markets and helped to lift U.S. exports to a record $22 billion last year. Says Economist Ackley: "There's no question but that Europe's inflation has helped the American economy."

Clash & Cameras. The fact that the U.S. and Europe are at odds seriously threatens their greatest current attempt to create still more economic interdependence: the so-called Kennedy Round tariff talks that aim to cut almost all duties in half. The Europeans at Vienna tried to disarm the U.S. delegates of their fears that General De Gaulle may scuttle those negotiations, but the chief U.S. tariff negotiator, Christian Herter, was uncharacteristically pessimistic. It became clear at Vienna that unless the U.S. and Europe can resolve their immediate conflicts, the march toward Western economic unity may be set back in a way that would affect the pocketbooks of everyone who buys anything from Japanese cameras to German Volkswagens.

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