Economic Troubles Cloud New Market's Future

WHEN the European Community's vast Single Market officially takes effect on Jan. 1, there will be no balloons and brass bands, and holiday fliers between EC cities will still face passport checks at airports. Europeans will wake up New Year's Day with the same 10 percent unemployment and doubts about European unity.

"There won't be the Big Bang some might have expected," says Ricardo Perissich, EC director-general for the Single Market.

Yet in its current dour mood, Europe risks almost overlooking the revolutionary step forward it has taken in creating the world's largest and wealthiest barrier-free market - and on a continent where, for centuries, economic battles have led to some of history's bloodiest wars. Moreover, a failure to reinforce the Single Market by pushing forward with European integration could lead to an unraveling of what the internal market program has achieved, some observers say.

"The Single Market is central to the Community's progress, but it is by no means certain that it could stand alone," says one senior EC official here. "If the political will to continue moving forward fails, we can anticipate more strains in the marriage contract that ultimately would strike at what we've accomplished."

The EC's languishing Maastricht Treaty for deeper political and economic integration is the obvious example cited. Without the prospect of a single European currency, as called for in Maastricht, the Single Market risks experiencing more of the damaging monetary instability of the past few months, some analysts note. And without the promise of deeper political integration, those EC countries looking for more than a glorified free-trade zone could tire of the Single Market's free-market philosophy.

As Europe's economy has soured, free-market ideas that are new to much of Europe face new challenges. "It's worth remembering that a majority of the questions asked during the debate in France on the Maastricht referendum actually had nothing to do with Maastricht at all, but with measures already taken under the Single Market," says Perissich. "We are not safely beyond a backlash against the new world of competition."

If Europeans aren't bursting to give the Single Market a coming-out party, it may simply be that markets aren't the kinds of things people gush about, as EC Commission President Jacques Delors has often noted. The fact that free movement of people - an aspect of the market that will be most evident to the average person - is not yet a reality also plays a role. (Border delays, Page 12.)

Another explanation is that many of the market's original 282 directives have already been implemented.

"By Jan. 1 we will have passed 95 percent of what we sought in 1986 to create the Single Market, and much of that will already have been translated into national law," says Perissich. "Adjustment to the market has been going on for years and won't be expected over- night."

But perhaps the major reason is the dark economic clouds now hanging over Europe. One of the central justifications for the Single Market was its ability to create greater prosperity, but it is making its debut just as Europe traverses one of its roughest economic storms in years.

"We're going to wind up 1992 with just about the same level of unemployed - nearly 10 percent Community-wide - that we had before this project," says an aide to Mr. Delors. In addition, economic growth is skidding to an anticipated 1 percent next year. All of which adds up to consumer and business confidence sinking to the same lows recorded during the pre-Single Market days of Euro-pessimism.

Both EC and independent analysts say that business anticipated the economic benefits of the Single Market, so that much of the burst of economic activity in preparation for the new market has already occurred.

Business investment, which had been flat for the five years preceding the decision in 1985 to create the Single Market, soared to a 7-percent annual growth rate from 1985-90. GNP growth over the same five years averaged 3.5 percent; mergers, joint ventures, and plant modernizations took off; and the moribund economies of new EC members Spain and Portugal jumped with new life.

But beyond the short-term statistics, many analysts say the real revolution of "1992" - Brussels shorthand for the Single Market project - is how it has changed the way Europe works and how it approaches business.

"Adoption of the 1992 program led to [national] budget cuts, deregulation, privatizations, and a general cutback in the excess role of the state," says Jacques Pelkmans, a researcher at the Center for European Policy Studies here and author of an upcoming book on "How 1992 Changed European Integration."

Mr. Pelkmans is not among those who believe that the EC's Single Market is threatened by the doubt building over Europe's continued integration. "1992 is a set of laws, and because of the mutual stakes no one would take a breach of those laws lightly," he says.

But he also acknowledges that further progress opened up by 1992 will be more difficult because the strong leadership that existed across the EC as the Single Market was being implemented is no longer present.

"Leaders five years ago had the courage and the political strength to take some very difficult decisions, but today that's no longer the case," he says. "Everyone is politically weak back home, which leads to fighting instead of compromise over Europe."

Perissich agrees that the current weakness of European leadership is a problem, but he adds that the Single Market is now largely in the hands of all Europeans. "What the Community has completed rather well is the legal framework, but it is not a blueprint for how the Single Market will actually work," says Perissich.

"Consumers and operators will have to invent their own Single Market according to their tastes, imagination, and ambition," he adds. "That's not for us to say from here."

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