Board of Economists: Growing, At Last

Ah, the sweet smell of economic recovery. Stock markets around the globe are resurgent, corporate spending looks set to rise, and optimists are even talking about a return to the golden years of noninflationary growth in the mid-1990s. But how strong is this upturn, really--and is it sustainable?

That may depend on where you stand. When TIME's Board of Economists met during the World Economic Forum in Davos, Switzerland, late last month, the perspectives varied according to geography. "The U.S. economy is on steroids," said a worried Pascal Blanque, chief economist at the French bank Credit Agricole. Blanque fears an America bulking up on dangerous deficits, a lax monetary policy and the falling dollar. "The European economy is on tranquilizers," retorted Laura D'Andrea Tyson, dean of the London Business School and former chair of the Council of Economic Advisers in the Clinton Administration. She argues that Europe is both too complacent about its weak growth and strong common currency, and too slow to boost its international competitiveness in response to surging U.S. and Chinese productivity.

The face-off between Blanque and Tyson highlights a sharp divergence in risk perceptions at the board session, which also included Moises Naim, formerly Venezuela's Trade and Industry Minister, who is editor of the Washington-based journal Foreign Policy; Fang Xinghai, the deputy chief executive of the Shanghai Stock Exchange; and Slawomir Sikora, president of Poland's Bank Handlowy w Warszawie--now part of Citigroup.

All five economists seemed upbeat about the resumption of growth worldwide and relieved that investment is picking up and confidence appears to be returning to both consumers and business. But while the U.S. focuses on jobs and obsesses about the emergence of China as a low-cost economic colossus, European Union nations have turned inward. They are preoccupied by the addition of 10 new E.U. members this year, by the tussle over a new European Constitution and by the collapse of the Growth and Stability Pact, which imposed rigid discipline--overly rigid, critics say--on governments to curb deficits. Europeans are concerned about the impact of the falling dollar on their exports, but they have yet to take action to stem the tide. "Be patient with Europe," pleaded Blanque. After all, he said, economic-reform efforts in France, Germany and elsewhere are under way, but they will take time to yield tangible results.

Too much time, said Tyson and Naim. "Europe has a tsunami coming its way this year," warned Naim. He predicted that as the weak dollar undermines European companies, European countries will be paralyzed by a clash between businesses urging far greater flexibility and unions and other groups seeking protectionist barriers. "This is the clash we're going to see emerging powerfully in Europe in the next 24 months," Naim said.