Europe's Outlook Darkens

Last December, just before Western Europe's third year of slump began, TIME'S European Board of Economists saw some glimmers of hope that an upswing might start in the latter half of 1982. Reunited last week in London, the same six board members agreed that the glimmers were gone. They have been extinguished mainly by persistent and punishingly high interest rates. The panelists now foresee a further slowing in Western Europe's economic growth for the rest of the year, accompanied by a steady rise in unemployment, which is already at a postwar high of 9.8%.

Some board members regarded the prolongation of the recession as the painful price of wringing inflation out of the system. Others, like Hans Mast, a University of Zurich lecturer and executive vice president for Crédit Suisse, feared that the deflationary cure has become too dangerous. He noted that trade protectionism is growing and that there is also the risk of an international financial squeeze that could dry up bank lending. It was time, said Mast, "to go on the economic offensive" against present policies.

In contrast to the prevailing view among European government officials and economists, a majority of the board did not consider that the U.S. should be held responsible for high world-wide interest rates and the dollar's excessive strength. Jan Tumlir, chief economist for the General Agreement on Tariffs and Trade in Geneva, described European complaints as a "demand that the U.S. create more money in the hope that interest rates will fall." He said that this would be a recipe for more inflation. Samuel Brittan, assistant editor of London's Financial Times, agreed. Said he: "Whatever the U.S. economy does, the Europeans are going to grumble. If the U.S. concentrates on stabilizing its economy, that is the best it can do for itself and for the world."

The board agreed that Western European leaders have little choice but to continue their anti-inflationary policies. France's go-it-alone attempt during the past year to attack unemployment through an expansionary economic policy ended embarrassingly last month in the devaluation of the franc and the establishment of wage and price controls.

A summary of the panel's prognosis for the four largest countries of the European Community:

WEST GERMANY. The economy of Western Europe's most important industrial power will decline 1% this year, according to Herbert Giersch, director of the University of Kiel's Institute for World Economics. He believes that the upswing will finally come in 1983, when growth will reach 1.5%. Unemployment is expected to rise to 7.5% of the work force this year. Inflation, which was 6.3% last year, will drop to 4% by the end of 1982.

Giersch blames excessively high wages in West Germany and most of the rest of the European Community for the persistence of the recession. Readjusting the price of labor is a painful process that he expects will take the rest of this decade. Said Giersch: "We hope that the political consensus will be strong enough to support this development."