Reagan win expected by Europeans

Press, 3 November 1984, Page 26

Reagan win expected by Europeans

NZPA-Reuter Brussels With one week to go to the American presidential election, Europe’s financial world has no doubt who will win, and foreign exchange and commodity markets are operating on the expectation of a Reagan victory.

A Reuter survey of European market operators shows that re-election for Ronald Reagan would have little immediate impact on the markets, with Administration policies expected to remain largely unchanged in the short term.

This is a major factor behind the current strength of the dollar, although one West German bank economist said he expected a Reagan victory next Wednesday to be followed by more determined efforts to cut the huge United States Budget deficit.

The survey shows that with a surprise win by the Democratic challenger, Walter Mondale, considered increasingly unlikely, the deficit issue and high interest rates are among the major concerns of European Governments and economic operators. Concerted action on the deficit would give some relief to Europe by taking jfessure off interest rates, lowever, economic experts are far from agreed on Mr Reagan’s likely course of action.

Most people surveyed said Mr Mondale’s plans to tackle the deficit by raising taxes seemed to offer a better chance than Mr Reagan’s approach of quickly reducing the shortfall, expected to be $175 billion this year.

Some operators fear surplus spending is so deeply rooted that neither a second-term Reagan Administration nor a new Mondale Government would have much scope for cuts. Reinhold Stoessel, chief economist of the West German Dresdner Bank, predicted Mr Reagan would probably tackle the deficit with more determination.

But his counterpart at the West German Hessische Landesbank Girozentrale, Jochen Schober, told Reuters he expected continuing high deficits and private-sector credit demand, which should give little room for a major drop

in United States interest rates.

Bill Bain, investment analyst for London stockbrokers Wood Mackenzie, said: “One fear about a Republican victory is that Reagan would regard it as a vindication of his policies, thus easing pressure on his Administration to cut its massive Government, borrowing.”

The United States Government’s need to fund the deficit has been blamed for helping to keep interest rates up, a major factor in the dollar’s strength and the United States’ attractiveness to investors.

With latest opinion polls putting Mr Reagan 17 to 24 percentage points ahead of Mr Mondale, no sensational upset is expected. “A Mondale victory would be a shock... A brutal surprise,” said Mr Stoessel. “An exaggerated dollar fall cannot be ruled out.”

Market operators polled thought Mr Mondale’s commitment to greater State intervention and protectionism would be likely to spark inflation and curb a worldwide recovery which has been largely led by buoyant exports to the United States.

Top European commission officials said excellent working relations with the United States have developed in the last four years despite occasional friction over farm exports and steel. They said they had been impressed by the Administration’s performance earlier this month when it avoided most of the unacceptably protectionist measures in a series of trade bills.

Many operators said Mr Reagan’s re-election could mean tougher control on high technology exports to the Eastern Bloc, however. West German industry has been lobbying the Bonn Government to make sure it is not again exposed to unilateral United States measures that could damage the country’s substantial trade with the East.

Monetary co-operation is one of the few areas where Mr Mondale’s policies are favoured. Mr Reagan’s Administration is seen as having been tough on Third World debt issues and Mr Mondale as more likely to compromise.