U.S. to Pressure Germany to Lower Rates : Monetary crisis: Industrial nations will meet in Washington in a bid to thwart total breakdown of Europe’s currency system.

In the midst of an international economic crisis, officials from the major industrial nations will meet in Washington today in an effort to pressure Germany to lower its interest rates and help calm a chaotic European financial system.

The Bush Administration--joined by Japan, Britain and other major powers--is expected to turn the crisis session of Group of 7 industrial nations into a confrontation with Germany over its hawkish economic policies, which brought on this week’s breakdown of Europe’s currency system.

On Friday, already weakened European currencies such as the British pound, French franc, Italian lira and others continued to plunge against the dollar and the German mark, as traders sought safe haven in advance of France’s Sunday vote on European unity. In a speech here, Treasury Secretary Nicholas F. Brady signaled that the Bush Administration plans to take a tough stance with the Germans. “Lower interest rates in Europe are inevitable if that continent is to return to growth,” Brady said. “And it is important that the return to growth be accomplished as soon as possible.”

Brady, who met here with Japanese officials Friday to discuss the European situation, is scheduled to meet privately today with German Finance Minister Theo Waigel prior to the G-7 finance ministers’ meeting to deliver the Administration’s stern warning on German interest rate policy.

The economic upheaval can be traced back to the collapse of the Berlin Wall and German reunification. For 15 years, Europe has been operating under a monetary system dominated by Germany that has linked all of the Continent’s major currencies together. That system worked well until Germany’s budget deficit began to balloon as the Kohl government poured $100 billion a year into the effort to modernize its formerly communist eastern half.

As a result, Germany’s independent central bank moved to raise interest rates dramatically to finance the bulging deficits while still curbing inflation. That led to an economic slump across the Continent and, in turn, put unbearable strains on the currency system. The gap in economic performance between Germany and the weaker nations, such as Great Britain and Italy, became too great to sustain the rigid exchange rate system, which finally broke down this week.

The fastest way to restore order in Europe, the Bush Administration and outside analysts believe, would be for Germany to slash its rates. But so far, the German central bank has offered only a token reduction.

U.S. Treasury Undersecretary David Mulford said in a television interview that it is unlikely that any significant announcements about German interest rates will come from today’s meeting. Instead, the Germans seem likely to wait to see the outcome of the referendum in France on European unity before taking further action. European fears that the French will reject the treaty and dash hopes for European unity helped fuel the currency upheaval, and investors have been selling their local currencies in favor of the powerful German mark for weeks.

But while the Germans are unlikely to respond right away, the pressure from the United States and other G-7 nations such as Britain will not be very subtle during today’s meeting. In fact, British Prime Minister John Major, who has been forced to devalue the pound and pull his nation out of the currency system because of the strength of the German mark, on Friday openly blamed Germany for the European problems.

“We want to make sure that monetary policy is run in the interests of all the countries of Europe and is not geared toward national interests in any individual country,” Major said in London.

So far, the European troubles have not had much impact on the American economy. In fact, the U.S. dollar has strengthened against all major European currencies in the face of the uncertainty fostered by the breakdown of the European system.

But Bush Administration officials are concerned that if the chaos leads to further economic deterioration in Europe, it could hurt U.S. exports and the prospects for a recovery here.

Long before this week’s crisis, in fact, the Administration had been urging Germany to cut its rates to help foster world growth. Now, Brady and Mulford believe that the currency situation enhances their leverage with Germany and gives them an opening to use the G-7 as a forum for forcing the Germans to finally cave in.

* RELATED STORIES, A1, D3