Germany Rebuffs Bid to Cut Rates : Economy: High interest levels won’t be lowered to ease Europe’s financial crisis, Bonn officials tell G-7 meeting. Bush invites finance ministers to White House today.

In tense, marathon talks held amid an international economic crisis, Germany on Saturday rebuffed calls from the United States and other leading industrialized nations to restore order to Europe’s chaotic financial system by cutting its sky-high interest rates.

As finance ministers of the Group of Seven industrialized nations gathered in Washington for their annual strategy session, the United States led a multinational effort to persuade the Germans to reduce interest rates further to calm jittery financial markets.

But as officials from the seven nations--the United States, Britain, France, Germany, Italy, Canada and Japan--emerged from their seven-hour summit, they acknowledged that no accord had been reached on German rates.

In a post-summit press conference, Treasury Secretary Nicholas F. Brady refused to publicly chastise the Germans for their refusal to act. Instead, he issued a mild statement saying that “the G-7 agreed on the importance of restoring stability in exchange markets in Europe.”

But while Brady acknowledged that no accord on German rates had been reached during the session, he said that President Bush would intervene personally today by meeting at the White House with the finance ministers of the major European powers and other countries.

German officials told reporters they still have no plans to make further interest rate cuts, asserting that their country should not be held responsible for last week’s European currency crisis, which caused the value of the British pound and other key currencies to plummet.

“Neither the German finance minister nor the president of the Bundesbank (the German central bank) would be in a position to make a promise to lower interest rates,” German Finance Minister Theo Waigel told reporters before the start of the G-7 meeting. After the meeting, Waigel and Bundesbank President Helmut Schleslinger said they still felt under no pressure to cut rates further.

Germany’s steadfast refusal to offer more than a token cut in its punishingly high interest rates triggered the currency chaos that gripped Europe last week, a crisis that now threatens to derail Europe’s drive toward political and economic unity.

European and American officials are fearful that the financial chaos in the European currency system may cause French voters to reject the Maastricht Treaty plan for European union in a critical referendum being held today. European officials are awaiting the outcome of today’s vote in France to determine the extent of the political fallout from the currency crisis and to see whether a coordinated financial system can be put back together.

The finance ministers of the major European nations plan to meet among themselves late today to discuss the impact of the vote on the currency crisis.

The reunified Germany now dominates Europe’s financial life, and its domestic policies on interest rates and other fiscal matters influence the economies of every nation on the Continent.

The financial system that broke down last week was designed to determine the value of every currency in Europe in relation to the German mark, effectively giving Germany the power to dictate currency values--and to a large degree economic policy--to its neighbors.

The system worked relatively well until German reunification, which forced Germany to run up massive budget deficits to modernize eastern Germany. The German central bank has been raising interest rates ever since to finance the deficits without fueling inflation.

With Germany’s high interest rates slowing economic growth throughout Europe, the Continent’s weakest economies--most notably Britain and Italy--have found it increasingly difficult to stay in the German-dominated exchange-rate system. In order to keep their currencies in line with the mark, they must try to keep up with Germany’s disciplined and anti-inflationary economic policies.

The British government of Prime Minister John Major, worried that the currency crisis could have devastating political consequences in Britain, angrily denounced German policies throughout last week’s crisis.

British officials made it clear that they will not rejoin the European currency system until Germany moderates its economic policies and allows the rest of Europe to begin to pull out of its lingering recession.

Major said that there are “fault lines” in the European exchange rate system that need to be repaired before Britain will attach the pound’s value once more to the German mark. Former British Prime Minister Margaret Thatcher, whose government fell partly because of her opposition to closer British economic ties to Europe, also said Saturday that Britain should stay out of the currency system.

In Washington, British Chancellor of the Exchequer Norman Lamont said that the British and German economies must be more “in sync” before currency union can be tried again.

For their part, German officials argue that the domestic economic problems in Germany make it impossible for them to significantly change course and abandon their high-interest-rate strategy. The Bundesbank cut key interest rates by up to half a percentage point last Monday to try to stabilize currency markets, but that was seen by other nations as little more than a token gesture.

German leaders, long known for their hatred of inflation, insist that deeper interest rate reductions are out of the question as long as Germany faces massive budget deficits and rising consumer prices resulting from the nation’s spending binge on reunification.

So far, the European crisis has had virtually no effect on the American economy. In fact, the uncertainty and chaos in Europe have led to a strengthening of the U.S. dollar.

Bush Administration officials--scrambling to find positive things to say about the weak economy in the midst of Bush’s uphill reelection struggle--insisted that the European crisis underscored the comparative stability of the United States.