Blooming with Germany

When West Germany's economy has a setback, most of Western Europe suffers because of the loss of German trade. Thus news that West Germany's economy is pulling out of its 18-month slump has sent ripples of optimism all over the Continent. The Common Market, which saw its members plummet to a record-low average growth of 2.5% in 1967, now predicts that 1968 will be a 5% year. And the 20-nation Organization for Economic Cooperation and Development, which only last month suggested that its West European members might make 4.5%, is now happily reconsidering that figure.

West Germany's problems were largely the result of a spending spree on the part of both consumers and government that sent the cost of living soaring. By clamping down on capital expenditures and tightening money, the government was able to nip inflation--and by the end of 1967, the economy was stabilized. During the first two months of this year, production was up about 5.5%. In March, crude-steel output hit an alltime high of 3.6 million tons. Domestic auto sales have been slower to recover, but carmakers predict an increase of 12% this year. Even the staid Deutsche Bank has been inviting Germans to loosen their purse strings. "You can go out and buy those things you put off last year," the bank said last week in a newspaper advertisement. "Perhaps a new car, in order to enjoy the nice season and the economic bloom."

Chief beneficiary of the new bloom is likely to be France, which ships more than 20% of its exports to West Germany. After matching its leading customer in economic cutbacks, France found itself with unemployment at a record Gaullist high of 450,000. To offset this, the government plans to inject $600 million into the economy during the year, while continuing to boost exports. Now that West Germany is back on its feet, the export business promises to brighten the French employment picture as the country's economy moves closer to the 5% growth rate it has been reaching for.

Most small countries, too, from The Netherlands to Sweden, have nervously watched their economies follow the lead of their best customer. And now the future looks more secure. Swedish economists, for example, are upping their forecast from 3.5% to 4% growth for 1968, despite a tight lid on wage increases and new construction.

Not all West European economies, to be sure, are so intimately tied to West Germany. Italy had its own inflation problems in 1964, which were cured by stringent government measures. Since then, Italy's economy has expanded steadily; last year it reached a growth rate of 5.9%. Still, there are potential problems. For one thing, Italian labor is being lured to other countries, creating shortages at home that will tend to push up wages. Rising private consumption is expected to exert a similar pressure on prices. And so far, at least, the government, which faces an election late this year, has shown little desire to curb its own spending or that of the electorate.

Hard Slog. Just about the only country of Western Europe that is not enjoying the boom is Britain, which is coming to grips with the fiercely deflationary budget that Chancellor of the Exchequer Roy Jenkins promised would produce "two years of hard slog." Together with devaluation, the government hopes to produce a long-awaited surplus in its balance of payments.

It will be at least a year before Britain can take part in the West German-led resurgence. Meanwhile, Britain--like its neighbors across the Channel--will be watching the U.S. to see how it acts to balance its payments and bolster its economy (see THE NATION). For any cutbacks in foreign investment by U.S. firms, or a more aggressive export policy, would be felt immediately everywhere in Europe.

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