Europe: Some Smoother Seas

TIME'S board sees growth up and inflation down but frets about the jobless

After some hesitation, the signs of economic recovery that are now so evident in the U.S. have finally reached the countries of Western Europe. Buoyant American optimism about the strength of the recovery, however, has so far failed to make the transatlantic crossing. Meeting in Vienna last week, the TIME European Board of Economists showed a caution bordering on skepticism about early evidence that the three-year-long grueling recession was at last over. The board's forecast for the nine major European countries* predicted recovery, but it was hardly cheery: growth will be only 1.5% this year and 2.5% in 1984; inflation will recede from an average of 9.7% last year to 7.5% this year and next. On the debit side, the board agreed that unemployment, which now stands at 10.7% of the work force or approximately 12 million people in the European Community, will hardly decline during the next year.

Hans Mast, a University of Zurich lecturer and executive vice president of Crédit Suisse, feared that persistently high interest rates could even abort the incipient European recovery. Warned Mast, who attributed the high rates, at least in part, to lingering worries about a resurgence of inflation in the U.S. and to the Federal Reserve Board's tight-money policy: "The prospects as seen from Switzerland are very chilling indeed. The three major short-term economic problems of our time have not been resolved." The first, in Mast's view, is unemployment, which "could rise to socially and politically dangerous levels." The second is the $600 billion debt of developing nations that is testing the stability of the international financial system. The third is the trend toward worldwide trade protectionism. Said Mast: "I have the feeling we are committing the same mistakes that led to the Great Depression. That is, we are continuing to fight an enemy that is no longer there. Inflation is no longer enemy No. 1."

Siding with Mast was János Fekete, deputy president of the National Bank of Hungary and a guest economist at last week's meeting. Said he: "I'm afraid that one day we will bring some flowers to the grave of the world economy with a note announcing that we won the battle of inflation, but unfortunately the patient died." For the first time since World War II, noted Fekete, the whole world—the Western industrialized countries, the Eastern bloc, the OPEC countries and the Third World—has been simultaneously caught in a slump. Fekete believes that budget deficits will cripple the American economic upswing and inhibit recovery in the rest of the world.

Jan Tumlir, Geneva-based chief economist for the General Agreement on Tariffs and Trade (GATT), warned that even when the recovery begins, it will not be like those of the past. Said Tumlir: "Some people talk as if this recovery were going to save us all or that we are returning to the 1960s, when straight-line, fairly steep growth paths seemed to be stretching from here to eternity. But this expansion is really just a cyclical one. None of us is willing to argue that it is going to last more than three years."