Europe: In the Same Boat and Bailing

By Bruce W. Nelan

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, Pirelli, 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.

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CREDIT: TIME Graphic

[TMFONT 1 d #666666 d {Source: Data Resources; OECD}]CAPTION: ECONOMIC BLUES ALL OVER

With reporting by James O. Jackson/Bonn and William Mader, London, with other bureaus