TIME: Almanac 1995

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<text id=90TT2771> <title> Oct. 22, 1990: Cold Feet On The Dance Floor </title> <history> TIME--The Weekly Newsmagazine--1990 Oct. 22, 1990 The New Jazz Age </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 55 Cold Feet on the Dance Floor </hdr> <body> With Britain joining Europe's monetary club, the partners may squabble even louder about how closely to embrace one another It had to happen. The euphoria felt by a continent awakening to its full potential after 45 years of cold war could not last. In the rush toward a united Europe in 1992, the European Community's toughest problems had been pushed to the sidelines, and the excitement over communism's collapse obscured the new dilemmas posed for the West by the political and economic needs of Eastern Europe. What no one could have anticipated was the speed with which the gulf crisis, and its attendant threat of recession, made matters worse by exposing some of Europe's illusions and sharpening some of its thorniest disagreements. All the more reason for Europeans to ponder the implications of Britain's sudden entry--at long last--into the European Monetary System's exchange control mechanism. Prime Minister Margaret Thatcher, who had opposed the EMS from the beginning as an infringement on national sovereignty, was tacitly acknowledging her need to belong--and her fear of losing influence over decisions in an E.C. in which the center of political gravity is shifting toward the newly united Germany. At the same time, however, Thatcher brought with her a philosophical challenge to the wider project, that of creating a common currency and central bank. Said European Commission President Jacques Delors: "Only the future will tell us if British entry into the EMS is not a pretext to slow down the process of integration." As a full-fledged EMS member, Thatcher is bound to sharpen the debate about the larger choices facing the E.C. An essential one, peripheral until communism crumbled in the East, is between "deepening" and "widening": Should Western Europe accelerate its drive toward closer economic and political integration among the 12 members of the European Community, or reach out beyond them to the impoverished, bewildered East European countries as they grope their way toward viable free-market economies? Britain--and increasingly the German government--argues that priority should be given to developing assistance programs for the fragile Eastern democracies, whose political stability and economic recovery are essential for all of Europe. French President Francois Mitterrand insists that the E.C. can both deepen and widen: achieve the Community's goals and help Eastern Europe. But even Delors, "Mr. 1992," doubts whether that aim is achievable: he fears that Germany's preoccupation with making unification work and its commercial expansion into Eastern Europe will slow down the process of E.C. integration. Delors has some grounds for worry. Karl Otto Pohl, the powerful president of Germany's central bank, last month expressed some sympathy for Thatcher's economic positions. Said Pohl: "More than a single currency, the emerging single European market needs converging economic policies, which are not yet in place." Like Thatcher, Pohl was asking how the E.C. can have a common currency when inflation rates range from a low of 3.1% in Germany and Denmark to 10.9% in Britain and 21% in Greece. The economically weaker countries of southern Europe--Greece, Spain, Portugal--also have reservations. Their principal fear is that once a single currency is created, they would lose the power to devalue their money, a useful tool for boosting exports and dealing with trade deficits. Thatcher remains alone in her unyielding hostility to the very concept of a supranational Europe. She was pushed into joining the EMS by a series of compelling domestic reasons, not least the prospect of an election within the next year and a half. The European monetary link, for example, will make it easier to reduce Britain's double-digit inflation rate. Sterling, already a petrocurrency at a time of soaring oil prices, will become even stronger. Pressure on Thatcher intensified also from other European capitals as the process of German unification reached its climax this month. In effect, Britain was being asked to weigh in as a countervailing force to Germany, which has Europe's most powerful economy. Even the French have been quietly but assiduously courting the British. Prior to unification day in Germany, a balance existed among West Germany, France and Britain, each with about the same populations, relative wealth and mix of political advantages and handicaps. A united Germany has upset that equilibrium. Worse, the chill wind of recession is in the air. Overall European growth will slow as oil prices climb. Paul Horne, the chief international economist for Smith Barney in Paris, points to recent protests in France over cheap meat imports from E.C. partners as signs of a potential "backlash against increased competition, industrial as well as agricultural, that can be expected." Nor will rising oil prices affect all E.C. countries equally. The dislocations triggered by the gulf crisis are bound to test the strength of European cohesion. If that is so, the European economy appears much sturdier than it was during the oil shocks of 1973 and 1979, when the E.C. suffered disarray. Moreover, although a severe U.S. recession would not leave Europe unscathed, the transatlantic economies are no longer so closely tied. Most reassuring of all, however, is the prospect that the German economy will, as never before, take over the leading role in Europe because of a huge burst of investment and energy that will go into the reconstruction of eastern Germany and the rest of Eastern Europe. The German economy is expected to grow by 3% next year. "At a time when a slowdown is taking place among many industrialized countries," said Pohl last week, "united Germany's economic dynamism is acting as a locomotive for the world economy." Every country is likely to benefit from the huge demand-led expansion generated by the reconstruction of what was East Germany. Looking ahead, the steady march toward European unity is not about to grind to a halt. True, the 12 members are divided on some key issues, and a go-slow period may be in the offing. But that has happened before; no matter how alluring the vision or compelling the logic, the United States of Europe remains a distant goal that cannot be hurried even by its most enthusiastic supporters. In bad times as well as good, movement continues because the process has become irreversible. By Frederick Painton. Reported by William Mader/London and Adam Zagorin/Brussels. </body> </article> </text>