Western Europe Basking in Europhoria

By Christopher Redman/Paris

Only a few years ago, Western Europe seemed overwhelmed by a malady known as Europessimism. Now the mood is closer to Europhoria. And with good reason: from Scandinavia to Italy, most countries are enjoying annual economic growth in the comfortable 2%-to-4% range, stock markets are strong, and corporate profits are robust. Most impressive, West European exports have surged by 33% in the past three years, from $689 billion in 1983 to $916.4 billion in 1986. With the U.S. alone, Western Europe enjoyed a trade surplus of $18.2 billion last year, a sharp contrast to the $2.9 billion deficit of 1983.

That overseas prowess is not dependent solely on sales of such consumer products as BMWs and Bordeaux wine. Other important export categories range from chemicals and pharmaceuticals to industrial machinery and office equipment. Europe's proudest achievement, perhaps, is its new prominence in aerospace. Airbus, the aircraft consortium backed by the governments of France, Britain, West Germany and Spain, has emerged as a major competitor to America's Boeing in the passenger-jet market. Last month Europe confirmed its successful lift-off in the space market by hoisting two communications satellites into orbit atop an Ariane rocket. While the U.S. space shuttle remains grounded, Arianespace, the commercial arm of the 13-nation European Space Agency, has in eight years put a total of 19 satellites in space and signed an additional 44 launch contracts worth $2.38 billion.

For all the renewed confidence in Europe, however, a few strains of Europessimism linger. Europeans realize that in the mid-1980s their exports to the U.S. received a mighty boost from the rise in the value of the dollar, which made imports less expensive for American consumers and businesses. Now that the dollar has taken a dive, Europe's export industries are feeling pressure once again. Another concern is sluggish investment. Despite healthy earnings, many of Europe's companies are not devoting enough money to modernizing and expanding factories. Instead, firms are stashing cash in high- yielding money-market securities or buying up other companies in Europe and the U.S. Warns an economist at the Paris-based Organization for Economic Cooperation and Development: "Europe's industrial assets are being reshuffled in a major way. But is this a prelude to better management of those assets or just portfolio game playing?"

Yet fundamental and positive changes are taking place. In several European nations bloated and inefficient nationalized industries are shrinking in size, losing government subsidies and, in many cases, being turned over to private enterprise. The British government has sold to the public major shares of its national airline and telephone and gas companies. In France Conservative Premier Jacques Chirac is carrying out a sweeping reversal of the nationalizations that Socialist President Francois Mitterrand engineered in the early 1980s.

Many European companies are learning to look beyond narrow national markets and forge alliances that will bring international clout. Italy's Olivetti, for example, was a near bankrupt typewriter company when Carlo De Benedetti, one of the most celebrated of a new breed of European entrepreneurs, became chief executive in 1978. After revamping its product line and forming joint- marketing ventures with AT&T, Olivetti has become a major force in the global office-automation market. This summer Sweden's ASEA and Switzerland's BBC Brown Boveri merged to create the world's largest electrical-engineering group, with annual sales of $15.5 billion.

Wolfgang Hager, a business consultant for the Brussels-based European Research Associates, points out that the new Eurogiants are fostering a "corporate culture that thinks European." Companies are pushing their governments to accelerate efforts to remove all trade barriers and completely unify product standards. The goal is to finish the process that merely began with the establishment of the European Community: the creation of a truly , integrated "home" market embracing the more than 300 million Europeans.

But even a united Europe will not continue to fare well in international competition unless it can keep pace in the technology race. Despite its achievements in aerospace, Europe has fallen behind in several technological fields, including robotics and digital audio equipment. Most serious, perhaps, is its dependence on imports of semiconductors, those electronic microchips now found in everything from computers to talking teddy bears.

While the semiconductor competition may already be lost, Europe hopes to return to the vanguard in the development of advanced applications for electronic technology. Governments and companies are forming pan-European research programs to spread costs and reduce duplication of effort. One example: the $4.5 billion Eureka program, launched in 1985. Backed by private funds and 19 European governments, Eureka now involves more than 600 companies and research organizations working on 165 projects ranging from high- definition-television technology to computer-aided systems for producing software.

Europe has no illusions about surpassing the U.S. and Japan in the high-tech competition. But the European effort now going into research makes it clear that the proud exporters of the Old World have no intention of retreating from the frontiers of science, industry and trade.

CHART: TEXT NOT AVAILABLE

CREDIT: TIME Charts by Cynthia Davis

CAPTION: W. EUROPEAN EXPORTS

In billions of dollars

DESCRIPTION: Shows exports from Western European countries, 1980-1986; color illustrations of airplane, typewriter, bottle of wine.