Europe's Ailing Economic Recovery

...Germany's Chancellor Helmut Schmidt insisted that the West should withhold concessions to the less developed countries pending the opec decision, making it clear that the more money extorted by the oil producers, the less would be available for aid?the object being to encourage the poor nations to exert pressure on opec to moderate its appetite...

...It is troubled, too, by the tendency of international companies to move their branch offices elsewhere because of soaring overhead...

...But, then, nobody can say that 1978 will be better...

...An official of one of the smaller European countries accurately summed up the Hague sessions—held shortly before the December 17 gathering of the Organization of Petroleum Exporting Countries (opec) at Qatar?as "a series of monologues presented by a procession of deaf men," each determined to sell his own panacea...

...But the concern remains that instead of cutting salary allocations for the Civil Service, local governments and government agencies, London will trim operational budgets, investments and defense outlays...

...By mid-December they led him into direct confrontation with the country's big trade unions, who insist on a 2 per cent cost-of-Jiving supplement despite an official wage-freeze policy...

...Like its more troubled partners, West Germany now has a government lacking the clear parliamentary majority that in the past enabled it to stick with solid economic practices in the face of short-term unpopularity...

...The Europeans charge the U.S...

...is restricting steel imports...

...The turning point seems to have been the program announced on December 15 by Chancellor of the Exchequer Denis Healy...

...Indeed, unemployment cast its shadow with a confounding sense of equality—over a West Germany where trade surpluses continued to accumulate, and in France where deficits continued to pile up...

...But some good could come out of all this...

...Many say even this is a considerable accomplishment in Italy...

...The last would greatly upset the nato chiefs, who have stressed the importance of countering the Soviet bloc's mounting arms expenditures...

...Some countries, particularly Germany and France, protest that the revised estimates are unduly pessimistic...

...Nonetheless, Parliament approved a budget with a huge deficit after making a great show of cutting 0.2 per cent (one-fifth of 1 per cent) of government expenditures...

...Denmark, for instance, has been plagued by strikes that have endangered the viability of the government, whose Social Democratic members find it hard to support heavy fines for unions violating collective wage agreements...

...In Italy, everything seems to grow —only not quite in the desirable sequence...

...President Valery Giscard d'Es-taing urged that all members follow France's path by fixing a ceiling on annual oil import expenditures, regardless of the per-unit prices...

...Europe is becoming more and more inward-oriented...

...several sensitive trade areas...

...In the weaker member countries, like France, the old structural problems, papered over by temporary accelerations, surfaced again...

...Of late, however, the batting average of OECD forecasters has been better than that of official government economists, and a quick survey of the problems confronting the EEC nations offers a less-than-cheering spectacle...

...It was in this atmosphere that another unprecedented development for West Germany took place: Chancellor Schmidt postponed for six months a pension increase promised before the October elections...

...in 1976, when conditions improved, oil consumption rose significantly—the strong increase of U.S...

...Negotiations with the International Monetary Fund (IMF) for a $3.9 billion credit to stabilize the pound finally reached a successful conclusion on January 3. The IMF had wanted a $2 billion-$3 billion cut in public expenditures, but the government raised the alarm that it might not survive the cruel measures such a course would necessitate, making the outcome of the talks uncertain...

...Although the problems of some of the smaller EEC partners are less dramatic, they are also potentially explosive...

...The statistics read like an economic jeremiad: Industrial production rose 2.5 per cent, but wages and prices rose 15 per cent, while unemployment hit 1.3 million, or some 5.5 per cent of the population...

...It seemed, too, that the economic malaise was reaching the very instruments designed to ward it off...

...Even the well-off countries have clouds on the horizon...

...This would create a very sharp upward pressure on energy costs, forcing a slowdown in the industrialized nations that could cause greater social and political difficulties than any temporary embargo...

...The Paris-based Organization for Economic Cooperation and Development (OECD), composed of the 19 free Western European countries plus the U.S., Canada, Japan, Australia, and New Zealand, has already scaled down its 1977 growth figure from the 5.3 per cent predicted last July to 4.3 per cent for the first six months and 3.8 per cent for the remainder of the year...

...Holland ended the year with a real trade surplus, yet 1977 may be a time of social tensions, as unions, demanding an average 8.5 per cent wage hike, increasingly balk at the government4mposed anti-inflationary measures...

...Belgium, whose franc has actually been gaining strength (thanks to its link to the Dutch guilder and the German mark in the European "snake" of currencies), is worried by the stagnation in private consumption and investments...

...In most EEC countries, the number of jobless was once more on the rise...

...The effect of this particular Italian "miracle" was to push the 1976 trade deficit up to some $6 billion, and to nudge the once relatively moderate unemployment past the 750,000 mark...

...The Germans have continued to sell much more abroad than they import, accumulating a hefty $13 billion trade surplus...

...It is designed to cut government spending and the budget deficit...

...In France, where inflation is again on the march, price increases were back to roughly 1 per cent a month for the last three months of 1976...

...For the remarkable recovery that in spring seemed to indicate a rebound from the shock of the 1973-74 oil price increases, began to sputter in the final quarter of 1976...

...The Europeans may finally face up to the hard truth that if the ailing recovery of '76 is to be given new momentum in '77, everyone is first going to have to share the burden of controlling energy usage and tightening overall economic procedures...

...Should Schmidt opt for consumption today at the expense of deficits tomorrow, the rest of Western Europe may come to regret that he went soft on the pensioners...

...PLAGUED BY OPEC AND INFLATION Europe's Ailing Economic "Reccovcry by euahu salpeter Geneva The cloudy skies and rain during my tour of four Western European capitals last month matched the somber mood of conversations about the Continent's economic health—from the Summit Council of the European Economic Community (EEC) in the Hague to the Secretariat of the General Agreement on Tariffs and Trade (gatt) here...

...the Americans suspect the Europeans and the Japanese have made an under-the-table deal on exports...

...imports providing a vivid example...

...In addition, unemployment is back to one million, prompting a committee of "Five Wise Men" appointed by the government to recommend, for the first time in the history of the Federal Republic, a policy of reflation to the tune of three billion marks in 1977...

...But each 1 per cent increase in the price of oil soon (within 12-18 months) adds about 3 per cent to the overall price level...

...The Federal Republic's EEC partners are probably not unhappy about the sequence of events, which they interpret as a retreat from Bonn's traditional tight-money policies...

...The initial skepticism about Prime Minister Raymond Bane's economic measures, which included some tax increases and a price-freeze, has not been dispelled...

...Similar confliots exist in the case of shipbuilding, tensions are heightening between the EEC and the Far East over textiles, and the EEC and the U.S...

...What is really frightening is that the Europeans are again devoting their main attention to how to divide the shrinking pie instead of trying to increase it," said a leading American diplomat in Paris...

...And Italy's Prime Minister Giulio Andreotti pathetically suggested that the EEC address a grand plea to opec to postpone any price hikes for at least six months...

...According to gatt Secretary General Oliver Long, the failure of a strong recovery to materialize has increased the pressures on governments to take protective measures, to regress toward unilateral or quasi-voluntary multilateral restrictions...

...And more worrisome than the immediate price squeeze is the long-term prospect: Even with moderate growth rates, it is feared, oil consumption may go beyond the point where opec countries consider it to be in their economic interest...

...None of this, of course, went unnoticed by the opec ministers...

...and the EEC has threatened to close its borders to Japanese steel unless Tokyo imposes some self-restrictions on sales to Common Market and other European countries...

...Meanwhile, behind the scenes one could hear the footsteps of reemerging protectionism...

...Germany still seems to suffer more from the fear of recession than from any real economic malady...

...Yet the original figure was presented by the OECD as the growth rate required to bring European economies safely out of the doldrums...

...But Bonn officials are distressed by the slow rate of industrial investments and the rather pessimistic "mood-polls" of businessmen, much publicized in the press...

...In Ireland, persistent unemployment and low standards of living have spurred disillusionment with the benefits of Common Market membership...

...True, the two-tiered world crude oil pricing system that emerged from Qatar—with Saudi Arabia and the United Arab Emirates instituting a 5 per cent price rise for 1977, while the other 11 oil producers insisted on 10 per cent in the first half of the year and an additional 5 per cent in the second half—was a welcome surprise...

...are at loggerheads over the Community's common agricultural policy...

...It has been an axiom for most of them that if Bonn loosens the purse-strings, West Germans will buy more from the rest of Western Europe...

...Of course, should he decide not to pursue questionable domestic economic practices and instead cease being paymaster for the unsound European economies, that wouldn't win any applause either...

...Nevertheless, there are already growing signs of friction among the U.S., the EEC and Japan in Eliahu Salpeter, a regular contributor, is currently a European correspondent for Israel's Ha'aretz...

...The top organs of the Common Market displayed a virtual paralysis not only on major internal issues, such as the development of common energy and monetary policies, but also on external matters, such as formulating a joint position foT the upcoming North-South dialogue between the industrial and developing nations...

...There are nearly one million unemployed in France, and the trade deficit, previously advancing at a leisurely pace of $300 million per month, accelerated so rapidly in November-December that it threatened to equal the sum for the whole first half of the year...

...Artificial boosting of the economies of the stronger EEC partners, notably West Germany and Belgium, did not after all initiate the expected self-generating process of vigorous growth...

...The reaction is understandable, since if the OECD is right, promises of a brighter future are unlikely to be fulfilled...

...This was clearly reflected in the EEC Summit Council meeting, where the establishment of a united policy vis-a-vis the oil prices was high on the agenda...

...Prices rise faster than production and wages faster than prices...

...Then, because of the public uproar, the government backtracked within 48 hours despite the fact that doing so was clearly contrary to the principles of sound pension-fund accounting...

...The government, depending on the Communists for its survival in Parliament, has been obliged to give up a number of severe wage-restraint measures, and in October it reinstituted a foreign-exchange surcharge that practically ended the free convertability of the lira...

...And the chronically ill, especially Britain and Italy, appeared to be sinking deeper into an inflation-trade defioit bind that no officially-inspired efforts at optimism could disguise...

...At the International Energy Agency (IEA) offices in Paris, one can find plenty of solid statistics demonstrating that the 1975 reduction in oil use was due to the economic slowdown rather than to any genuine savings...

...He adds, half ironically and half hopefully, that he still believes some progress is possible at this year's tariff negotiations: "True, 1977 will not be as rosy a year as many had hoped...

...In Britain, 1976 growth has amounted to only about 2 per cent —far below the 4.5 per cent needed to reduce unemployment and help the sickly pound sterling...

...As usual, Paris puts the blame on the oil import costs and at the same time continues to advocate moderation toward opec in the European councils...

...Yet it is hard to avoid the suspicion that what has occurred in Germany has something unpleasantly in common with what is happening in such countries as Britain or Italy...

...The next day an expert in Paris noted wryly that although France had reached its '76 ceiling, it was buying oil under the label of "stockpiling" against the '77 budget...

...To appreciate the full impact of the situation one must realize that when experts speak of "moderate rates of growth," they are thinking in terms of 3.5-4 per cent annually...

...That brings us to the root of the current reversal: a feeling of impotence in the face of oil price increases...