But Europe Is In a Stall

A comeback bogs down

The European recovery, which seemed in early summer merely to be slowing down, now shows signs of petering out altogether. The Paris-based Organization for Economic Cooperation and Development reckons that the average rate of expansion in Western Europe will not increase at all for at least the next twelve months from its present lackluster 2.75% a year, hardly sufficient to create jobs for the more than 7 million Europeans currently out of work. Unemployment, which has stood at record postwar levels in some countries since 1974, is expected to grow still higher in the next ten months, from 4.75% to 5.25% of the total European work force. This is still much less than in America, but unemployment has always been psychologically much more shocking in Europe than in the U.S.

Many European governments are thus under enormous pressure to seek higher growth. Citing "the preoccupying problem of unemployment," French President Valery Giscard d'Estaing last week announced a $1.1 billion infusion of government spending for public works and family allowances, the second stimulative effort this year. Britain's trades unions are pressing Prime Minister James Callaghan for a large "catchup" pay boost and a major expansion program to create jobs. Even wealthy West Germany, which has sorely disappointed the rest of Europe (as well as the Carter Administration) by failing to push very hard on its crucial economic accelerator, may finally be getting ready to apply the gas. Chancellor Helmut Schmidt, worried by new forecasts that set West German growth this year at 3.5% to 4% (v. his own target of 5% last May), is in the midst of a full-scale review of stimulus alternatives.

Bonn could well afford a program of expansion, but most other European governments are strapped. Last week Denmark, faced with both 10.4% unemployment and a projected trade deficit this year of $1.7 billion, felt forced to impose a $1 billion tax increase. Sweden, expecting a $3.6 billion balance of payments deficit by year's end and struggling with an annual rate of inflation at about 16%, last week devalued the krona by 10%, and is considering other austerity measures. The country also pulled out of the European monetary "snake," the collection of currencies tied to the West German mark, because Stockholm wanted to devalue the krona much more than snake rules allow. Because their economies are closely tied to Sweden's, Denmark and Norway felt obliged to devalue their own currencies by 5%, but neither followed Sweden out of the snake.

Though inflation for Western Europe as a whole ran at an 11% annual pace for the first half of this year, the OECD expects declining food and commodity prices to reduce the rate to a little over 9% by year's end and perhaps as low as 7 1/2% by mid-1978. Even at that level, the rate would still have a depressing effect on both business and consumer confidence and would continue to cast a cloud over the ability of governments to deal effectively with economic problems--particularly if inflation is accompanied by rising unemployment.

This file is automatically generated by a robot program, so viewer discretion is required.