AT THE TREASURY DEPARTMENT these days Germany bashing is all the rage.
Officials at Treasury rail against the West Germans for not slashing interest rates and reducing taxes. The Germans, they say, must stoke domestic demand if they are to reduce their $12.2 billion trade surplus with the United States.This clumsy attempt at coercion has served only to widen any existing chasm between the two countries on fiscal and monetary philosophy. With federal elections in Germany coming in January, Treasury's brand of blackjack diplomacy is counterproductive. Even if the Germans were agreeable to such change, the public badgering by the United States has served only to stiffen German resolve.
The Germans say, and rightly so, that before throwing any stones, Treasury would do well to put its own house in order. West Germany boasts a $25 billion trade surplus, which may grow by 20 percent this year. It has posted zero inflation in recent months and it expects to post 3.5 percent-4 percent growth for 1986.
Treasury's argument really falls apart considering that German domestic growth is up 4.5 percent in real terms from last year. It's ironic that Treasury is lecturing the Germans, in light of the $221-billion federal deficit and the $149-billion trade deficit rung up by the United States in the last year.
Yet Treasury officials continue to bully the Germans. The German projection of 3.5 percent growth in 1987 is fantasy, they say; an interesting theory in light of the Reagan administration's 4 percent U.S. growth forecast for 1986.
The Germans have long memories. They have not forgotten the hyper- inflation that followed the two World Wars, or the high inflation and high unemployment that came in 1978 when the United States last pressed Germany to boost growth.
There is an understandable neurosis about inflation in Germany and no amount of U.S. pressure will change this. The latest figures show a German money supply increase of 7.5 percent annually, already in excess of its 3 percent-4 percent growth target. Asking the Germans to do more will bring a chilly response.
The same goes for cuts in the discount rate. Germany's 3.5 percent discount rate is a full two percentage point below that of the United States. An additional cut at this stage, the Germans feel, would be inflationary.
Even so, the Germans have yielded to some U.S. suggestions. They have instituted two tax cuts, one that took effect last January and one that will take effect next January. After the election - if the Christian Democrats maintain control of the government - Chancellor Helmut Kohl says he will push through a sweeping tax reform based on the U.S. model.
To be sure, there is room for growth in the German economy. Germans are reluctant to boost government spending, since they believe the spending increase in 1978 was responsible for the inflation that followed.
But today conditions are different. The 1979 oil shock jacked prices to well over $30 a barrel, well over its current price of $15 or so a barrel. One U.S. government official says the German economy has yet to feel the beneficial effects of the oil glut. The fall in the price of oil, he says, could mean energy savings next year of some 50 billion deutsche marks.
The depreciation of the dollar has not hurt the Germans nearly as much as the Japanese, since most Germans trade is with Europe. With zero inflation there is room for reflation.
The administration's thinking is right, it's just their method that's mucked up. Administration officials would have better luck convincing the Germans to boost demand at home if Treasury would abandon its ham-handed approach to economic diplomacy.