Western Europe: Some Problems of Maturity

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It is 21 years since peace came to Western Europe, and the Continent's postwar economies have reached a high measure of maturity. They continue to grow, but not nearly at the breathless rate of a few years ago. Western Europe's economic growth rate in 1964 raced along at a 5.6% annual pace; last year it slowed to 3.5%. In 1966, by most estimates, it will slow down further, to somewhere between 3% and 3.5% . Little if any of this trend can be attributed to consumers; the cause lies in conscious and calculated policies for mulated by governments fearful of inflation and more than willing to try mild deflation as an alternative. "The climax of the boom is behind us," said West German Economics Minister Kurt Schmücker last week. "But this is an entirely natural process of adjustment."

Help Wanted. Growth is slowest in Britain, where stagnation and affluence continue to make an odd couple. London looks like the best-dressed city in Europe; saddlemakers and Savile Row tailors are backlogged with orders, and the average Briton feels that he is doing better than all right. Yet the island suffers from overfull employment (jobless rate: 1.4%), spiraling wages and sluggish productivity. To battle inflation and spur exports, Prime Minister Harold Wilson has sought to deflate domestic consumption by raising taxes and restricting credit. In 1965 the pound was thus defended and strengthened, and the trade gap was drastically pruned. Economic growth, however, dropped from 5.4% to 2.3%, and this year's prospect is for 2% or less. Though Britain is producing at full capacity, its long-familiar but urgent challenge is to expand capacity and efficiency much faster in order to pay its way in the world.

West Germany, which last year at 4.8% had one of Western Europe's fastest-moving growth rates, will probably slow to 4% or even 3.5% this year. Chief reason: economic expansion has resulted in a major labor shortage. Even with 1.2 million workers imported from other countries, there are five job openings for every unemployed person. Not surprisingly, wages rose 10% last year, squeezing profits and depressing capital investment. Though Germany still boasts the world's second highest exports (after the U.S.) and $7 billion in monetary reserves, the hunger of its increasingly well-to-do consumers for imports caused a 1965 net balance-of-payments deficit of more than $350 million. Economist Ludwig Erhard's government is trying to combat the problem by raising some taxes and holding back federal spending.

Wants Helped. On the other side of the coin, some recently ailing West European economies are recuperating. France's growth rate, which last year was cut in half (to 2.5%) as a result of a credit clampdown that effectively stemmed inflation, is expected to snap back to 4.5% this year, as restrictions are eased. Investors were so cheered by the recent removal of Finance Minister Valery Giscard d'Estaing, architect of deflation, that they kicked the stock market's blue chips up 10% to 15% just after the change. "But," warns the Chase Manhattan Bank in a survey, "since price controls are being continued and wages are rising further, profits and private investment will most likely continue at low levels."