Debate with Doodles

The official communiques summed up decisions reached at the Versailles economic summit but not the mood and spirit of the high-level talks that led to the decisions. After interviewing several participants, TIME European Correspondent Lawrence Malkin was able to reconstruct a bit of what took place at the afternoon session on Saturday, June 5:

It is sultry and close inside the Salle du Sacre (Coronation Room). The men at the huge conference table have their jackets off, and even British Prime Minister Margaret Thatcher, in a light summer dress, has a few beads of perspiration along her impeccable upper lip. The debate on economic and monetary affairs, supposedly the height of the summit, drones on. President Reagan starts amusing himself by doodling neat little pen portraits of imaginary figures--a nondescript man with a mustache, something that looks like a smiling Marlboro cowboy, and the head of a horse. Treasury Secretary Donald Regan passes a note to Secretary of State Alexander Haig: "We should be out swimming in that fountain." Haig scribbles back: "Yes, without all these clothes on." "I agree," Ronald Reagan signs on. Then, in full view of his colleagues, his eyelids droop, and the President of the United States dozes off.

Canada's Prime Minister Pierre Trudeau had kicked off the session in his hectoring style by demanding to know each nation's economic plans. "Can we control inflation without imposing unacceptable levels of unemployment?" he asked. "When will real rates of interest come down, and if that depends on deficits coming down, how long can we wait?" Then he turned to Reagan and asked how the other leaders could help him politically in his struggle with Congress to reduce the U.S. budget deficit.

Reagan held forth for 20 minutes. Franklin Roosevelt, he said, had run in the 1936 election on a program of lowering unemployment through higher deficits, but that policy had not worked. "It took World War II to cure that," Reagan argued. A presidential survey of the failings of postwar Keynesianism was followed by a primer on Reaganomics: cutting the level of Government spending, deregulation and a tax program to stimulate investment. U.S. inflation was coming down, and unemployment, he hastened to add, started rising before his election; as for the recession, well, that was the Federal Reserve's fault because it reined back too quickly on the money supply. Yes, he conceded, the budget deficit is too high, but we're trying to cut back.

Still annoyed at the U.S. waffle on the Falklands crisis, Thatcher was nevertheless diplomatic in reminding Reagan of the dangers of huge budget deficits. "It is wrong to assume that deficit spending works," she said. "Even Keynes didn't think so, and I know because I've been reading Keynes. There is not necessarily a trade-off between inflation and unemployment."

West German Chancellor Helmut Schmidt, waiting for his turn at the microphone, became notably restless. He had to sit through yet another lesson, from Japan's impenetrable Prime Minister Zenko Suzuki.

His message: "We have kept inflation down due to the Japanese people and their character." When at last he got a chance to speak, Schmidt complained that high interest rates were choking off new investment and pounded the table as he described the link between inflation and exchange rates. "Inflation began with the Viet Nam War," he said.

"We printed money to pay for oil--all of us." Schmidt said he liked the predictability and discipline imposed by the European monetary system, adding that West Germany was not going to spend its hoard of dollars to support other currencies (for which read the French franc), but only to help keep the system running smoothly. Turning to the U.S. Treasury Secretary, Schmidt said: "I like the [interest] rates you're paying on dollars, Mr. Regan." Replied Regan: "Don't get too used to that."

Schmidt was reminded that Don Regan that very morning had promised to intervene in disorderly exchange markets. "Didn't you notice that?" asked Reagan. No, he hadn't, the Chancellor admitted. Anyway, Reagan went on to argue, even if U.S. interest rates came down, it would be "no panacea" for the world economy. As for the Fed, "we cannot order them not to publish the money-supply figures. They're an independent body, but we'll relay the message." The President finished up with a little homily about "no quick fixes" for the world's economic problems. Said the summit chairman, French President null Mitterrand: "Nobody can accuse Ronald Reagan of going back on his principles."

There were no great surprises at the session. As one participant observed: "They all sounded just the same inside as they do outside." They also sounded as if they were unaware of one of John Maynard Keynes' most trenchant observations on the way the real world works: "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."

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