contend with a lurch toward fiscal overconvergence on the two sides of the Atlantic. Instead of being Nippon’s automatic borrower and spender of last resort, America is now heading into a financial ménage à trois which will include a capital-hungry Europe and a less thrifty Japan. If Americans resented Japanese financial power when the MOF was protecting the dollar, what will they think when Japan decides to divert more of its shrinking pool of surplus savings to Europe?
The good news for Japan is that a reunified Germany could ultimately emerge as a target for some of the economic xenophobia which Americans now reserve for Asia. The new Germany will have eighty million people and a GNP equal to 35 per cent of America’s. Like Japan, Germany was a late industrializer and has a corporatist economic tradition. In contrast to the Japanese, German officials also have a long history of publicly scolding American policymakers. As this Teutonic tendency toward outspokenness is unlikely to shrink as Germany’s economy expands, Washington could easily find itself turning back to Tokyo for consolation when quarrels with Berlin develop. In fact, we may see a dramatic realignment of American international economic policy. Since the mid 1980’s the U.S. has criticized other industrial countries for oversaving and underconsuming. But if Germany’s new capital needs continue to push up world interest rates, the Administration is likely to rethink the advice it dispenses to Europe and Japan. Indeed, might we see, at this June’s G-7 conference in Houston, Mr. Bush rising to express alarm about the high level of world interest rates, to criticize countries that hog surplus savings through profligate budget deficits, and to announce that it is time for a large tax increase—in the Federal Republic of Germany?
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