Time - Man of the Year/Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso/moy/012092/0120004.000

Text File | 1992-08-28 | 5KB | 111 lines

                                                                                WORLD, Page 30

EUROPE

In the Same Boat and Bailing


The Continent is suffering just as much economic pain as the
U.S., and the partners will have to sink or swim together

By BRUCE W. NELAN -- Reported by James O. Jackson/Bonn and
William Mader, London, with other bureaus


    If misery loves company, a lot of recession-battered
Americans may be gazing across the sea. There is certainly fuel
for economic schadenfreude -- the sneaky feeling of glee at your
neighbor's troubles -- over there. Europe has fallen into a
slump since the middle of last year, and unemployment and
stagnation are becoming political problems as well. The American
tourists who have seen how well Europeans live may find it
difficult to believe, but hard times there are a fact.

    Anyone who draws satisfaction from this state of affairs
is making a serious mistake. The world economy is too closely
intertwined for any country's hardships to be anything but bad
news for everyone. With so many nations relying on export sales,
simultaneous recessions could pull the whole trading system
down.

    Just a few months ago, Germany seemed to be chugging along
in its now-traditional role as the Continent's locomotive,
pulling the European Community toward ever higher performance.
But now the "Deutschland Express" has stalled and is expected
to stay that way for much of 1992.

    "We are in a recession," Norbert Walter, chief economist
of the Deutsche Bank, says flatly, which means this will be "a
year of recession in Europe." Other German experts, who shudder
at the very word recession, say it has not arrived yet -- but is
just around the corner. The country can console itself with the
knowledge that its problems arise largely from its reabsorption
of the former East Germany, where many of the old centrally
directed enterprises stand idle and official unemployment nears
12% -- not counting another 2 million workers in part-time,
make-work jobs. Few Germans seem steeped in the gloom that
prevails elsewhere: the economic and social costs of unification
will be paid off in due course, and opinion polls indicate most
citizens think that will be soon.

    In recent years, unemployment in the larger European
countries has been considerably higher than in the U.S. That is
still the case in Britain, Italy and France, where the
percentage of jobless is well above the current 7.1% in the U.S.
Some of the smaller countries have been hit even harder: 19% are
out of work in Ireland, 15% in Spain and 11% in Belgium. Such
high rates would produce a political earthquake in the U.S.,
but Europeans are better cushioned by more generous
unemployment benefits.

    Britain's stubborn recession was induced in part by Prime
Minister Margaret Thatcher's tax cuts of 1987, the ensuing rise
in inflation to 11% and the stiff interest-rate hikes Thatcher
then used to force prices down. Those rates are still high, and
real estate and industry have not recovered from the whipsaw.
For the new government of John Major, improvement cannot come
too soon: he must call national elections by June.

    Europeans generally deny that, as the old saw has it,
their economies develop pneumonia whenever America sneezes.
Still, political leaders are quick to point a finger abroad when
it suits them. Just as some American politicians blame Japan
for the recession, the U.S. is a popular whipping boy in
Europe. French President Francois Mitterrand finds his
popularity plunging along with his economy. On national
television last month, he claimed the country had been growing
until "suddenly the bad news arrived, mostly from the U.S."

    In Paris last week, Prime Minister Edith Cresson named
unemployment, now nearing 10%, as "the government's public enemy
No. 1." The mood of France is so downbeat that Mitterrand coined
a new word to describe it: sinistrose, an amalgam of the words
for calamity and moroseness.

    Italy is burdened by public debt, 6.4% inflation and 10.2%
unemployment. The great Italian trade names -- Olivetti, Pi
relli, Fiat -- are struggling. For most citizens the
implications of this recession are only beginning to sink in,
but labor leaders say the crisi will soon hit the whole
white-collar sector. Yet the country's planners look abroad for
succor. "Everything depends on what happens in the U.S.," says
Tancredi Bianchi, president of the Italian Banking Association.
Confindustria, the employers' federation, is also hoping that
"the symptoms of recovery are confirmed in the U.S."

    The American economy, which accounts for a third of the
production of the industrialized countries, is of course tied
closely to Europe's. A larger truth, however, is that recovery
for all of them requires the revival and expansion of world
trade. That in turn depends on a successful conclusion of the
current, deadlocked Uruguay Round of negotiations to reduce
tariffs worldwide. If it fails -- and some economists suggest
that hard times in so many countries make it all the tougher to
sell the unpopular compromises that are needed -- then the
upturn may be a long time coming.