Europe May Bear Burden of Its Advice : Pressure on U.S. to Lower Its Deficit Would Shift Defense Costs

European bankers and political leaders have some free advice for President Reagan and the Democratic-run Congress on what America should do to help the West recover from the collapse of global stock markets last month.

Face the fact that the United States has been living beyond its means, they say, and recognize that the market crash was largely a consequence of investor jitters over what they saw as a chronic reluctance among U.S. politicians to do anything about big trade and budget deficits.

Stop the political toe-dancing, the Europeans add, and make a credible commitment to substantial reductions in the federal budget deficit. Accept the necessity of enacting politically painful tax increases and spending cuts.

The most self-righteous noises are coming from the West Germans, who steadfastly refuse to recognize that their own economic policies were a contributing factor in the crash. But even British Prime Minister Margaret Thatcher, Reagan’s best friend in Europe, has joined the chorus.

As she told a London audience Monday night, “the overriding need is that those (budget deficit) cuts should be sufficient to restore confidence, clearly and decisively.”

It’s good advice, of course, even if the panic among investors was not really justified in light of improving U.S. trade and budget trends. Washington is hearing the same cut-the-deficit refrain from Wall Street, industrial leaders and most economists in this country.

A bipartisan group of congressional leaders and Administration officials has been trying for almost four weeks to hammer out a politically viable formula for reducing the deficit enough to impress the stock and money markets.

The interesting thing, though, is the widespread European slowness to understand that serious reductions in the U.S. budget deficit, necessary as they may be, are bound to affect the U.S. contribution to the defense of Western Europe.

For weeks there has been a steady stream of moans and groans from European political leaders and defense specialists, especially in West Germany, who complain that the prospective U.S.-Soviet treaty on intermediate-range missiles will leave Europe more vulnerable to the Soviet Union’s big numerical edge in conventional, non-nuclear forces.

If so, the best solution would be a follow-up agreement in which Moscow accepted the need for disproportionately large reductions in Soviet tank forces and other conventional arms that are seen as especially threatening by the North Atlantic Treaty Organization.

If the Soviets are not prepared to make lopsided concessions, the other alternative is to beef up the West’s own conventional arsenal. The problem is that conventional weapons are expensive; a conventional arms buildup would require higher defense budgets on both sides of the Atlantic.

Except in France, European parliaments are simply not willing to spend the extra money. Considerable support for strengthening conventional forces exists in the U.S. Congress, but budget pressures threaten to make additional expenditures impossible.

Under terms of the Gramm-Rudman law, federal spending will be cut automatically by $23 billion unless Congress can come up with a deficit-reduction package of at least that amount. European financial men, like their American counterparts, have made it plain that a larger deficit reduction is needed if the markets are to be persuaded that Washington is at last getting serious.

Our European friends would like for the U.S. deficit reduction to be accomplished by higher taxes, as Thatcher suggests, or by restraints on domestic spending. In real life, however, the military budget is a natural target.

A recent poll found that five times as many Americans prefer to reduce the deficit through military spending than favor tax increases. Only 23% thought cuts in domestic spending should be the main approach.

The early years of the Reagan Administration saw the biggest U.S. military buildup in peacetime history. Although the money was not always spent wisely, there is little doubt that the deterrent value of the U.S. armed forces--including the big American troop presence in Western Europe--was enhanced.

As a result of pressures to hold down the massive U.S. budget deficit, however, the upward march of defense spending stopped long before the stock market crash of Oct. 19. In inflation-adjusted dollars, the military budget as enacted by Congress has already fallen for two straight years. At best it will stabilize at more or less present levels--well under what the Reagan Pentagon believes is necessary. At worst it could go much lower.

Sen. Sam Nunn (D-Ga.), chairman of the Senate Armed Services Committee, says flatly that the Administration’s five-year plan calling for budget growth of 3% a year is simply “unattainable.” Obviously the pressure is on the military establishment to make some hard choices.

There is already talk of reducing the 600-ship navy by, among other things, the early retirement of two aircraft carriers and the cancellation of the badly needed Midgetman missile. The Strategic Defense Initiative, or “Star Wars” program is being cut back. Rep. Les Aspin (D-Wis.), chairman of the House Armed Services Committee, warns that “we’re going to have to look at closing down some production lines.”

Frank C. Carlucci, who has replaced Caspar Weinberger as defense secretary, told a Senate committee last week that, if we face a period of tough restraints on military outlays, he would prefer to achieve the savings through force reductions. The need for two Army divisions added by the Administration, for example, would be reexamined.

Common sense supports the conclusion of Norman J. Ornstein of the American Enterprise Institute that, “Long term, the great pressure is on personnel, cutting force levels and getting troops out of Europe.”

The West Europeans, fortunately, have already been thinking about the possibility of a reduced U.S. contribution to Europe’s defense without regard to the stock market crash and its effect on U.S. defense budgets. France and West Germany, in particular, are building cooperative military ties.

Except in France, however, ordinary Europeans are not prepared to pay the higher defense bills that even a partial U.S. withdrawal would logically require. Ironically, by contributing to the pressures for U.S. deficit reduction, European leaders may be hastening the day when they will have to face the crunch, ready or not.