Unified Europe Won’t Threaten Global Trade

In 1992--500 years after the European discovery of America--the Old Continent may take a lesson from the New World. The European Community, or Common Market, has set 1992 as the year its 12 countries acknowledge the wisdom of U.S.-style interstate commerce and become a free internal market in which people, money and goods move across borders without passports, exchange controls or customs.

But so far, though imitation may be the sincerest form of flattery, American business has reacted suspiciously to 1992. The 12 EC nations, led by West Germany, France and Britain, have a population of 320 million--a market as large as the United States and Japan combined. To U.S. business, the prospect of such a trade bloc drawing closer, or launching more powerful competitors on the world, seems threatening.

But size is not the same as strength. The truth is that 1992 is more an act of desperation than a power move for countries suffering high unemployment and lagging competitiveness. It represents Europe coming to terms with global change just as U.S. firms have had to do, says Albert Reynolds, a member of the EC’s Council of Industry--and Ireland’s Minister of Industry and Commerce. Reynolds visited nine U.S. cities this month to explain 1992 to American business, and delivered a message that was blunt on the economic ills of the European Community today.

“Europe lost its way in the 1970s, early 1980s, when its response to the oil crises was to protect home manufacturers,” says Reynolds. “That created an uncompetitive situation which didn’t serve Europe well. While the U.S. and Japan have created 20 million jobs, Europe has stagnated and lost jobs.”

Productivity Compared

The unemployment rates tell the story. Holland has 13.9% unemployment, West Germany has 8.9%, France, 10.4%, Italy 15.7%, Belgium 10.4% and Britain 8.9%--compared to 5.3% in the United States and about the same in Japan.

“And Europe lost out in world markets, too,” says Reynolds, especially in the advanced industries such as telecommunications and information technology.

In fact, an EC study found Germany, France and Britain with less than half the productivity of America and Japan in electrical goods and office equipment. (The study found the United States leading in computers but trailing Japan in electrical equipment.)

Clearly, the EC--founded 31 years ago as a customs union of France, Germany, Italy, Holland, Belgium and Luxembourg, and expanded to include Britain, Denmark, Ireland, Spain, Portugal and Greece--never became one big market but remained 12 small ones.

Only 2% of the EC’s $550 billion a year in government purchases is by open bidding. The other 98% is reserved for national producers in each country. Thus Siemens’ telephones win contracts in Germany, CIT-Alcatel wins in France, and Plessey wins in Britain.

But sheltered companies grew fat, uncompetitive outside home markets, and high cost inside. The EC projects that after 1992 consumer prices in Europe will fall 6.5% a year as companies are forced to become more efficient. And 3 million jobs will open up as Europeans open bank accounts, seek work and move goods across borders. “A new dynamic will come to the market,” says Reynolds.

Which is what worries U.S. and Japanese companies: A business pickup in Europe with them shut out of the action. The way to avoid that, suggests Reynolds, is to set up an office or factory “and position your company inside the market.”

For Industry Minister Reynolds that means invest in Ireland, which has attracted 350 U.S. companies over the years by limiting corporate tax to 10% of profits--but hitting its own people with a heavy income tax to offset that. It’s the kind of policy a country with the youngest population in Europe--and 1 million of its 3.5 million people still in school--must follow to alleviate 18% unemployment.

Again, such stark jobless figures point to why 1992’s reforms are needed. Anything that can create jobs for young people, and spur growth in a trading bloc representing $4 trillion of purchasing power, is no threat but a lift for world trade and for economies far beyond Europe’s borders.