Slow, Slow, Slow

Europe is in trouble

The U.S. economy may be chugging along nicely, but much of the rest of the world is close to a new recession. That was the sobering message of a report on 1977 and forecast for 1978 published last week in Paris by the Organization for Economic Cooperation and Development. The OECD's words carry weight because its 24 member countries make up just about the whole non-Communist industrial world.

According to the OECD, the biggest trouble spot is Europe, and it is easy to see why. While unemployment has been coming down gradually in the U.S., Europe's jobless rolls have been rising since early 1975, and the idle are now about 5.1% of the work force. Reason: economic growth has taken a nosedive. In Europe's four largest economies, those of West Germany, France, Britain and Italy, growth averaged only 2% last year, exactly half the figure for 1976. The slowdown reduced inflation, but not very much: prices rose an average of 10% for non-Communist Europe as a whole.

Unless steps are immediately taken to stimulate economies, warns the OECD, the job picture in 1978 will get even worse. The organization sees growth of perhaps as little as 2.5% for Western Europe. That would mark a slight increase from 1977, but riot enough to prevent a further rise in unemployment, which the OECD says could go as high as 6%.

For all 24 member countries, the organization predicts a composite growth rate of 3.5%, the same as 1977, and a jobless rate of 5.5%, up nearly one-half of 1% from 1977. Worst of all, it warns that the pattern of slow growth and high unemployment could become permanent for the world's industrial democracies, especially if governments throw up more protectionist barriers to trade in an attempt to save jobs.

What can be done? The OECD recommends prompt efforts by West Germany and Japan, two "locomotive" economies, to speed up growth. Since Japan is already trying to stimulate its economy, the obvious target of the OECD appeal is West Germany, which has consistently rejected expansionist economic policies. At the same time, West Germany has built up a giant $16.7 billion trade surplus that has left the deutsche mark vulnerable to revaluation on the world's money markets. Indeed, because of the recent slide of the dollar, the increased value of the mark is beginning to crimp the country's exports. If West German consumers could be encouraged to spend more and if industry would increase its capital investments, the process might be reversed. But expanding the country's economy is not easy. Consumer markets are already highly-developed, and West Germany's thrifty burghers have one of the industrial world's highest savings rates (15% of net income, or about three times the U.S. figure). As a result, fiscal stimuli such as tax cuts do not mean ringing cash registers at department stores but increased deposits in family bank accounts. It is a cycle that must be broken if the West German economy is to lead the rest of Europe out of its current doldrums.

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