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Britain, Japan Praise Plan To Cut U.S. Deficit With PM-Budget Plan, Bjt

November 21, 1987

LONDON (AP) _ A tentative plan to slash $76 billion from the U.S. budget deficit could help restore confidence in the world’s financial markets, said Nigel Lawson, Britain’s Chancellor of the Exchequer.

The plan also drew praise today from Japan’s finance minister.

But European economists were widely divided in their reaction.

The plan to reduce America’s budget deficit was announced Friday by the Reagan administration and Congress.

Most of the European markets were closed or about to close Friday evening when the news was first reported. However, the dollar did rise against major foreign currencies and stock prices in London staged a late rally.

Japanese markets were closed today.

Asked about the plan, Lawson said Friday: ″This is an essential element both in the correction of the imbalances that have been plaguing the world economy, and in the restoration of confidence in the financial markets.

″Other major nations ... will now need to prepare an appropriate response, with a view to a meeting as soon as practicable after the Congress has approved the package, so that a successful cooperative approach to current economic difficulties can be agreed,″ he said.

In Japan, Finance Minister Kiichi Miyazawa today said the agreement should have a positive effect on world markets.

″We place great value on the concrete outcome of the deficit-cutting agreement,″ Miyazawa said in a statement. ″With this agreement, we hope foreign currency and other markets will be favorably influenced.″

Miyazawa noted that Japan is trying to restructure its economy by revising its tax system and expanding domestic demand.

Increased consumer spending in Japan is expected to help rectify its huge trade surpluses with trading partners.

The finance ministries of France, the Netherlands and West Germany had no immediate comment. Economic analysts cautioned that the agreement was difficult to assess since it was tentative and its details were not yet known.

Bill Martin, chief economist for the London investment firm Philips and Drew, was distinctly unimpressed. ″The impression one has in Europe is of a system which can’t deliver anything coherent or sensible on the budget deficit,″ he said. ″But we live in hope.″

Nevertheless, Alberto Mucci, chief economist with Banca Nazionale del Lavoro in Rome, Italy’s largest commercial bank, said his initial reaction was very positive. ″If there hadn’t been an agreement, the repercusssions would have been very serious,″ Mucci said.

″They are a first step on the vital path to regaining equilibrium in the U.S. federal deficit,″ he added.

In Amsterdam, Daniel van der Tuin, of the Van Haften investment banking firm, said: ″Any accord beyond the legally required cuts (of Gramm-Rudman) is positive, the reason being that there will also be cuts in the second year.″

And Martin Huefner, senior economist at Deutsche Bank AG in Frankfurt, said: ″The figures that are cited signal a willingness to cooperate.″

European leaders and economists have been clamoring for Washington to do something about the deficit since the world stock markets’ crash in mid- October. British Prime Minister Margaret Thatcher and Lawson were especially outspoken in pressuring President Reagan to cut the deficit, by increasing taxes, if need be.

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