(4 of 5)
Moshe Arens had encouraging words for Washington. The Israeli Defense Minister made the expected protest that Stinger missiles supplied to Saudi Arabia might wind up in the hands of anti-Israel terrorists. But he raised the point only during the last two minutes of his 37-minute talk with his American counterpart, Caspar Weinberger. Otherwise, Arens told reporters, "in my judgment [U.S.-Israeli relations] have never been better." Arens may have been laying it on a bit thick to impress voters in both the U.S. and in Israel, which goes to the polls in July. But relations have indeed improved since Arens and Prime Minister Yitzhak Shamir replaced the prickly duo of Menachem Begin and Ariel Sharon last year.
Reagan and his aides expected only mild criticism of the U.S. at the London summit. None of the heads of government want to embarrass the President in an election year, and anyway there seemed to be little to argue about. The recovery that last week pushed the American civilian unemployment rate down to 7.5%, barely above the 7.4% level when Reagan took office, has begun to take hold in the rest of the industrial world, and in most countries it has been accompanied by relatively low inflation. One White House staffer predicted with satisfaction that the summit would be "dull."
That is no longer the way Europeans are talking, however. They have been shocked by recent hikes in American interest rates, which they see as a threat to economic growth in both the U.S. and Europe. They are concerned that the rising rates will make it ever more difficult for Third World countries to repay their gargantuan debt and that their inability to do so will threaten the stability of Western banks that hold the loans. The near collapse a few weeks ago of the Continental Illinois Bank of Chicago, a major international lender, sharpened their fears. A bad omen: Bolivia last week suspended repayment of $3.4 billion in foreign loans (see ECONOMY & BUSINESS).
At a Franco-German meeting in the chateau of Rambouillet outside Paris last week, West German Chancellor Helmut Kohl called the Third World debt "one of the most important [problems] before the London summit" and grumbled about "how deeply we feel the danger of this situation." Seated beside him, French President Francois Mitterrand nodded assent.
He assailed "the noxious effects of high interest rates" and pledged, "Germany and France are very decided to appeal to the parties concerned."
Precisely what the Europeans will ask Washington to do is uncertain. U.S. Treasury Secretary Donald Regan is bracing himself and the President to resist a demand that they press U.S. banks to put a "cap" on interest rates, at least on loans to the Third World.. Some European financial officials want Washington to urge U.S. banks to face the fact that there are Third World debts that will never be repaid and to set aside larger reserves to cover the losses. The major debtor-nations in Latin America have scheduled a meeting in Buenos Aires after the London summit. They threaten to take drastic action of their own: the joint withholding of interest payments on their loans.