For the past three years, Western Europe has been the slowpoke of the world economy, lagging well behind the U.S. and Asia. Now Europe is achieving the kind of steady growth that demonstrates a welcome, if belated, capacity to respond to international competition. During the past twelve months, Europe has pushed ahead at close to an average 3% annual rate, while the U.S. has expanded at only 2%. The European upswing, moreover, is expected to last another twelve months or so, fueled by a backlog in export orders, healthy profits in many industries and a rise in consumer spending.
All that good news, however, is prompting only faint cheers from Europeans. Reason: it is a strange, jobless prosperity that so far has made no significant dent in Europe's record 19 million unemployed. It is also a lopsided recovery, still heavily dependent on exports, especially to the U.S., and therefore relying on a strong dollar and good American growth.
That was the bittersweet assessment of TIME's European Board of Economists at its meeting in the Swiss banking center of Zurich. Hans Mast, a University of Zurich lecturer and executive vice president of Crédit Suisse, pointed to Western Europe's estimated trade surplus of $25 billion this year, compared with $10 billion a year ago, as evidence that an export boom is propelling most of the growth. Western Europe this year is expected to have a surplus of $30 billion in trade with the U.S.
The trade situation, though, could be affected by instability in foreign exchange markets and shifting currency values. A readjustment of currencies within the European Monetary System, which is made up of Belgium, Denmark, France, Ireland, Italy, Luxembourg, the Netherlands and West Germany, took place last weekend. The Italian lira was devalued by 6%, while other currencies were revalued 2%. The Italian currency came under heavy speculative pressure on Friday, with its value going from 1,870 lire to the dollar to 2,200 in a few hours before the Bank of Italy stepped in and ordered a halt to trading.
Plenty of good economic statistics can be seen in Europe. A decline in overall interest rates and rising profits have brought an increase in industrial investment, notably in West Germany and, to a lesser extent, France. Inflation is hovering around 4.5% annually in most European countries, a major improvement over the 10% or more rates of just three years ago. The news on unemployment, though, is much less encouraging. The TIME board foresaw over the next year a decrease in the jobless rate from the present 11% of the work force to only 10.8%.
Assuming that the U.S. economy remains on course, the board gave encouraging forecasts for the European Community's major economies and Scandinavia:
WEST GERMANY. For Herbert Giersch, the economy looks "quite satisfactory," especially when compared with the recession year of 1982, when the conservative government of Chancellor Helmut Kohl came to power. Growth this year is loping along at about 2.5% and should reach 3% in 1986. That's a considerable improvement over three years ago, when GNP declined 1%. Inflation is down in the same period, from 4.6% to 2%.