Will the Greenback Come Tumbling Down? : Money: Western Europe is on the verge of adopting a common currency, with Bonn in charge, and the United States risks being caught flat-footed.

While communism in Central Europe crumbles along with the Berlin Wall, something less amenable to TV images but potentially far more consequential for the United States is about to unfold--the creation of a monetary union in Western Europe with West Germany at its helm. Once that occurs, Bonn’s ability to pull financial levers from Lisbon to Rome will give it global clout rivaling Tokyo’s. Washington is sure to be caught flat-footed.

The issue will reach a boil this week at the European summit at Strasbourg, France. The European Commission in Brussels, the Common Market’s headquarters, wants to link the German mark, the French franc, the British pound and the Italian lira to form one European currency unit. It also wants to establish a super-central bank.

The idea behind the common currency is that it’s not enough to open up markets across Western Europe by the heralded deadline of 1992. If intra-European business is to flourish, so the argument goes, the uncertainties produced by 11 fluctuating currencies must be eliminated. Commerce between Germany and, say, Spain, or between Italy and Denmark, should encounter no more obstacles than that between New York and Pennsylvania.

Even with everything else going on in Europe, the currency question has become the most highly divisive political issue on the European Community’s agenda.

The role of Germany, by far the strongest of the economies, is the first point of contention. France and Italy, for example, are ardent supporters of a monetary union because they want to lock the German powerhouse into the Common Market and keep its political attention and financial resources focused on Western Europe. Also, those countries would like to see a European central bank that could give them a say in German economic decisions.

German opinion is divided. Most top politicians like the idea of a stronger Western Europe with Germany at the controls. But Bonn may not want to rush into commitments to the West that would reduce its maneuverability in the East. And German central bankers, eager to preserve their independence, want to go slow as well.

Plain old sovereignty is also a hot debating point. For British Prime Minister Margaret Thatcher, it’s one thing to open up Britain’s borders to trade. It’s quite another to have no control over the value of the pound, or even to be told how to manage tax and spending policies to support a European currency. She is waging the battle of her life to prevent British economic policy from being set by people whom British citizens have not elected.

Finally, there is the dispute over what kind of people will run the new central bank--soft-hearted finance ministers who are elected politicians and prone to support inflationary measures, or cold-blooded central bankers who are willing to pursue tight-fisted, job-destroying policies at the first sign of rising prices.

Despite all the hand-wringing and posturing that will take place in Strasbourg, however, a European monetary union under de facto German stewardship is inevitable sometime in the early 1990s. There may be some delays, but Bonn is likely to conclude that the best way to reduce criticism of whatever it wishes to do in Eastern Europe is to be totally supportive of Western European goals.

Sovereignty of the kind London seeks is a mirage, and the British, deep down, know it. Already, when the Bundesbank alters policy, the Bank of England has to follow suit or watch the pound plunge. Thatcher or her successor will fall in line.

And while the setting of monetary policy will always be a struggle between politicians and technocrats, many European leaders would secretly be relieved to let German central bankers be the anchor of monetary stability for the European Community. With pivotal influence over money and credit, Bonn will have the most to say about how fast countries in the region grow, how prices are determined, the level of unemployment and relative balance of power between lenders and borrowers. It will, in short, run an advanced industrial market of 350 million people, larger than ours and three times the size of Japan’s.

American industry may find Europe tougher to penetrate, not because of protectionism but because of conservative growth policies. The Treasury and the Federal Reserve may encounter a German mark that rivals the dollar and even overshadows the Japanese yen, thereby giving investors around the world another way to dump the greenback in the event of a crisis or dissatisfaction with U.S. policies. A German voice could become louder in the International Monetary Fund and other global forums, which are bound to grow in influence as the world economy becomes more interlinked.

Meanwhile, America’s strength is evaporating. There is no consensus in Washington on currency or budget policy. Our financial system wallows in debt. Long- term investment is anemic. We are at a loss to know how to handle drugs, crime and deteriorating schools.

Bonn, like Tokyo, is not plagued by any one of these obstacles, let alone by all of them combined. Like Japan, Germany is facing the 1990s with expanded possibilities, while our options are narrowing. Whatever happens in Berlin or Warsaw or Moscow, this growing disparity of momentum between us and our chief allies and rivals in Europe and Asia may create America’s most serious international tensions in the 1990s. It could become a new kind of Cold War.