Europe regains momentum
THE current upswing in the European economy is welcome news not just for the people of that continent but the Western world in general. A number of special challenges, of course, remain in the overall European economic spectrum. The British pound has been falling vis-`a-vis the US dollar, leading to efforts by the British government to prop it up. Inflation appears likely to start again in Italy soon, partially due to an expected sharp spurt in that nation's growth rate in the next few months. Throughout Europe, joblessness -- in part stemming from the addition of many young people to the labor market -- remains at historical high levels, at least, since the depression of the 1930s.
All that said, reports now emerging from Europe show a continent once again on the march, feeling its own uniqueness. A ``can do'' attitude, say visitors, is again felt throughout much of the continent. Europe's current economic rebound is one of the major engines driving the world recovery.
The recovery came later to Europe than to the United States. Then, when the US recovery was slowing somewhat, Europe's momentum began to build, helping to keep the overall world recovery on track. That both the US and European economies now are showing steady growth strengthens the view that the recovery should prove durable throughout the remainder of 1985 and -- assuming some action is taken by the US government to reduce its massive budget deficits -- into 1986.
Analysis by Data Resources Inc. suggests continentwide growth this year of 2 to 3 percent. The latest report of the New York-based Conference Board finds leading indexes rising for France, West Germany, and Italy. Among the major European nations, only Britain is momentarily down, as far as leading indexes are concerned. Still, a number of economists expect Britain to join its European counterparts in posting economic growth during 1985, up from the modest 1.5 percent growth registered during 1984.
What's happening to explain all this, of course, is the fact that Europe's exports are booming. The reason? Ironically, the strong dollar. It has has made European goods attractive vis-`a-vis their higher-priced US competitors. Noting that is not to detract from the quality of European-made goods. But the roaring export link to the dollar cannot be denied at this juncture.
For Europe's political and economic leaders, the current export-growth pattern suggests at least two important steps:
Europe needs to modernize its industrial and technological base to take advantage of its current trade gains. At some point the dollar will surely soften, in part taking away some of Europe's trading edge. European political leaders, for their part, would welcome a ``soft-landing'' for the dollar, to help stanch the flow of currency from that continent to the US, where European capital is helping to finance US deficits. In that regard, finance ministers and central bankers are meeting in Washington today to look at the whole currency issue.
Such an eventual soft landing, assuming it comes, will mean that European firms must make reforms to become truly competitive on a product-by-product basis.
Europe must more willingly embrace newer electronics and high-technology-oriented industries. Doing so is important not just to stay abreast of major changes in technologies but, in part, to help offset the political clout of older manufacturing-oriented trade unions, which have tended to oppose a free-market orientation for Europe's economies. ------30{et
