Schmidt fears N.Y crisis will have ‘domino effect’

Press, Volume CXV, Issue 33966, 6 October 1975, Page 15

Schmidt fears N.Y crisis will have ‘domino effect’

( By

DAVID BINDER.

cf the "New York Times," through N.Z.P.A.)

WASHINGTON, October 5.

Chancellor Helmut Schmidt of West Germany has told President Ford of his fear that New York’s fiscal crisis could have a “domino effect,” striking at other financial centres as far away *as Frankfurt and Zurich, officials in Washington said today.

Mr Schmidt spent close to three hours with President Ford and other Administration leaders on Friday during a private visit to the capital.

According to the wellplaced officials, Mr Schmidt found the President fully informed after meeting with NewYork bankers ahout the breadth and depth of the plight of New York — both of the city and of the state.

But the West German leader’s suggestion that New York’s situation had a potential impact well beyond United States territory was something new for Mr Ford, the officials said.

Mr Schmidt, a politician! with considerable experience in economic and monetary matters through previous assignments in the West German Federal Cabinet, had presented some of his views on New York in a news conference on Thursday. He said then that he considered the New York situation to be a problem with “international” implications.

But he was evidently more explicit in his talks with Mr Ford, the Treasury Secretary (Mr William E. Simon) and Mr Arthur F. Bums, chairman of the Federal Reserve Board.

He was said to have spoken of “a dangerous psychological effect” if the fiscal crisis persisted. At the same time. Washington officials said, the

West German leader acknowledged that it was not so simple for federal authorities to intervene, since this could invite other troubled cities to demand additional assistance from the Federal Government and set a burdensome precedent.

But he is understood to have warned that New York’s troubles could result in bank failures, defaults on

other public debts, the inability of New York or other cities to sell public bond issue and other chain-reac-tion effects.

To support his thesis on the interdependence of the international economic community in relation to the New York crisis, Mr Schmidt cited the “enormous impact” of two bank failures in recent years. One involved the Franklin National Bank of New York and the other the Herstat Bank of Cologne. Mr Schmidt reminded his Washington listeners that both these bankruptcies had internation! repercussions. A fiscal collapse of New York, he was said to have told President Ford, would result in a crisis of confidence well beyond the city limits.