Prosperity Round the World

Around the free world the economic picture was bright. While the Iron Curtain countries try to cope with falling production, shortages of food and consumer goods, Britain, Italy, France and other free nations report thriving industry, booming stock markets and rising standards of living (TIME, May 10, 1954 et seq.). Last week the most up-to-date summary of just how well the world is doing was presented in Basel, Switzerland, in the 25th annual report of the Bank for International Settlements. Said the bank's General Manager Roger Auboin: "Nineteen fifty-four has been for the world a year of prosperity and promise." Proof of this prosperity came in a nation-by-nation roundup. In Europe's 17 OEEC countries,* gross national product rose an average 4% during 1954. The big point, said Banker Auboin. is that Western Europe continued its postwar boom despite the short U.S. "recession" that began late in 1953. While the index of industrial production in the U.S. showed a decline of 9% during the recession, the combined index for the Western European countries showed an increase of 4 1/2% in 1953, and 8 1/2; in 1954. Said he: "It is of the greatest psychological importance that the haunting fear of major fluctuations in the U.S., which Europe has had in the past, has lessened."

Imports v. Exports. With its new confidence Europe has reached greater financial security. The supply of native capital for investment is rising; e.g., in France, Italy and Germany, capital markets were more active in 1954 than in any other postwar year. Moreover, Europe built up a 1954 trade balance, i.e., exports over imports, of $1.2 billion, only $200 million under 1953's postwar record. For West Europeans, the surplus meant that they could not only boost monetary reserves, but allow more imports of dollar goods. Thus European imports from the U.S. rose $500 million in 1954, even though exports to the U.S. dropped by $250 million.

Sounder currencies made it possible to lift restrictions on trade and foreign payments, said Auboin, as he ticked off Europe's progress: reopening the London gold market, lifting controls on the use of transferable sterling for current transactions, giving limited convertibility to the German mark, and unblocking other German balances. As a result, "monetary reserves are now better distributed than ; they used to be." The total gold and dollar holdings outside the U.S. rose $2.2 billion last year, with Italy, Germany and France taking the lion's share.

Freedom v. Controls. The European consumer has gained most from a sounder currency. Prices have been stable for three years, not because of controls, said Auboin, but because of genuine market forces, aided by active monetary and credit policies designed to maintain over-all equilibrium during a period of expanding production. In short, more abundant supplies kept prices down. Output of farm products was up, and production of industrial raw materials, e.g., oil, coal, etc., has gone up 60% since 1937 (the last normal prewar year). Said Auboin: "Now that supplies are becoming more abundant and inflationary tendencies are being curbed by flexible credit policies, it seems likely that, provided the world remains at peace, inflation has come to an end." To balance his rosy optimism, Auboin raised a flag of warning. Said he: "In most countries all the available manpower is by now fully employed, and, for this reason alone, it is unlikely that the recent rate of expansion can be maintained all along the line." (Britain has already tightened credit to restrain its boom.) To consolidate Europe's gains, each country must watch its national budget, keep a check on inflation, remove restrictions against international trade and currency exchange. Said Auboin: "There is no reason for complacency." Prosperity "will remain precariously based until the principal currencies of the world are again quoted at a single realistic rate of exchange under proper market conditions."

* The Organization for European Economic Cooperation includes Austria, Belgium, Denmark, France, Great Britain, Greece, Iceland, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey, West Germany. The U.S. and Canada are associated countries.

This file is automatically generated by a robot program, so reader's discretion is required.