Western Europe is enjoying an economic recovery that, for all its modesty, promises to accelerate this year and endure well into 1987. And, thanks to falling oil and commodity prices, inflation is expected to drop further. That was the encouraging assessment presented by TIME's European Board of Economists at its twice-yearly meeting, which was held this time in Madrid to mark Spain's and Portugal's entrance into the European Community.
Despite a declining dollar on world currency markets, which makes foreign products more expensive in the U.S., Western Europe's trade surplus is expected to rise from last year's $25 billion to $40 billion. If, as expected, the European export boom eventually cools down, the gap can easily be filled at home by rising consumer demand and increased industrial investments. Even the painful level of unemployment will probably decline slightly in the year ahead, partly as a result of an increase in small, new businesses. Nonetheless, some 10.5% of the labor force remains jobless, and this continues to be Western Europe's major economic and political problem.
Some board members warned against what Herbert Giersch, director of the University of Kiel's Institute for World Economics, called a mood of "Europhoria." The good economic news has led investors to push up prices sharply on all the major stock exchanges in Europe in recent months, but Giersch warned that growth will not be enough to solve deep-rooted problems like unemployment. Hans Mast, an executive vice president of Crédit Suisse, agreed. Said he: "Unemployment in Europe has many demographic, structural and social causes that cannot be redressed simply." He also pointed out that his upbeat forecast assumed that U.S. economic performance would improve. "Ultimately," Mast said, "Europe cannot prosper unless the rest of the world is prospering."
Mast acknowledged that familiar threats to the recovery still existed: a crash landing of the declining dollar, for example, or a collapse of oil prices could bring turmoil to the international financial system. An American turn to protectionism as a means of dealing with its $145 billion trade deficit poses another risk. So does the vast, unpayable debt being borne by developing countries. But Mast believes that prospects for international crisis management have been greatly improved since U.S. Treasury Secretary James Baker launched his campaign last year for closer cooperation among the world's major industrial countries. Said Mast: "1986 could be a decisive year. Let us hope that it will not turn out be a year of missed opportunities."
The French government has suggested that the industrial nations launch a coordinated program to reduce interest rates as way of spurring growth. That was probably one of the topics discussed last weekend at a closed-door meeting in London finance ministers from the five largest industrial countries. The U.S. has been urging West Germany and Japan to follow policies that would foster more growth, but they have resisted, arguing that inflation remains a threat.