European Economies Have Severed Ties to America’s

I am spending this academic year in Europe and shall be devoting my next several columns to reports and impressions of economic developments among European countries.

My initial and most striking impression, after only a month here, is that European economies are rapidly losing interest in economic developments in the United States. It used to be that when America sneezed, Europe felt itself catching pneumonia. Now, with the U.S. economy suffering from bronchitis or something even worse, Europe seems to be telling us to take two aspirin and drink plenty of liquids.

These impressions have been sharpened for me by the stark difference between two conferences, four years apart, I’ve attended about the European economy.

The first took place in Bonn in the spring of 1986. At that time, many Europeans spoke admiringly of the U.S. “jobs miracle”--a sentiment richly represented at the Bonn conference. High unemployment rates were plaguing many key European economies while employment had been growing with what seemed like stunning success in the United States. Many at that conference were wondering whether the U.S. model, variously described by such terms as “Reaganomics” or “flexible labor markets,” could be usefully applied to help overcome what they often called “Euro-sclerosis.”

The second conference took place in Venice early last month. Its theme was “The Economics of a New Europe.” Participants focused on problems and prospects in both Western and Eastern Europe (including the Soviet Union). Italian Foreign Minister Gianni de Michelis closed the discussion with an interesting review of the challenges facing the European political economy in transition.

At this conference, in sharp contrast with 1986, virtually no one made even passing reference to the United States.

It is true many assumed that some kind of “free market model” would be pursued, in various unpredictable ways, in many of the Eastern European economies over the next decade and that U.S. economists and financial consultants were playing an important role in helping shape that jolting institutional transformation.

At the same time, however, no one seemed to be impressed with either the prospects for or the actual institutional examples represented by the U.S. economy. Europe represented an increasingly potent economic force in its own right. Many seemed to feel European economies would and could forge their own distinctive ways of adjusting to and maneuvering within an increasingly integrated European Common Market, with complete integration anticipated in 1992.

How would the U.S. economy fare during the 1990s? It seemed as if the conference participants couldn’t care less.

To what should we attribute what appears to be a dramatic inversion of European perspective on the U.S. economy within such a short space of time?

There are two sides to the Atlantic and therefore, at least superficially, two sides to a provisional answer to that question.

On the American continent, U.S. economic achievements in late fall, 1990, obviously look much less impressive than they did in spring, 1986. Not only has the U.S. economy stumbled into a recession of unknown proportions, but it has become increasingly clear to many here that economic growth during the long U.S. expansion from 1983 to 1990 was purchased at huge costs to future generations.

U.S. corporations and consumers have run up massive amounts of debt that will weigh heavily on their prospects during the 1990s and beyond. And the United States has become the largest debtor country in the world--hanging desperately, against all odds, on the willingness of the Japanese and Europeans to continue providing prodigious infusions of capital.

The U.S. economy is no longer either a hegemony or a bellwether.

On the European side of the Atlantic, by contrast, three developments strike me at first blush as most important to helping explain the Europeans’ turning their shoulder on the U.S. economy.

First, many Europeans are surprised and, ultimately, delighted at the rather sudden acceleration of movement toward European economic integration over the past four years. Their recent success at steering through the treacherous straits of economic nationalism seems to have produced a feeling both of continental pride and of lustful anticipation of the challenging economic opportunities that lie ahead. (At the same time, however, they do not unrealistically ignore the immense problems of fitting their national economies comfortably and effectively into a more integrated European framework.)

Second, the stunning developments in Eastern Europe have obviously turned heads in that direction. Europeans seem to feel a deep commitment to helping Central and Eastern European countries through their current and impending problems. They also drool at the possibility of vast new economic opportunities in those economies during and after the transition.

They also recognize that Eastern Europe (including what is now the eastern part of a unified Germany) will require huge capital investments--which will (hardly incidentally) place rival claims on much of the money that has been recently feeding capital accounts in the United States. Inevitably, as well, the apparent end of the Cold War dramatically reduces Europeans’ feeling of political and military dependence on the United States.

The third provides perhaps the most important piece of the explanation. I get the impression that the combination of the first two developments has convinced many in Europe that they can and must build on their own institutional history and institutional imagination to chart their future economic course. Many no longer seem to feel the need to emulate models from outside Europe. They feel that they have their economic future in their own hands. And they seem to feel confident of their own capacity to take advantage of future economic opportunities without outside interference or help.

In this regard, I was struck by a comment that Spanish President Felipe Gonzalez made in a recent interview in the prestigious French newspaper Le Monde. He was speaking of both the promise provided by an increasingly united Europe and of the likelihood that European countries could and would fashion an institutional design based on their own history and ingenuity.

“Among existing institutions,” he noted, “it’s the European Economic Community that has achieved the greatest progress. It has been able to refine itself, to consolidate its unity even while enlarging itself. It exercises a powerful attraction to all of its neighbors.”

“When one speaks of the new European architecture,” he continued, “I think of all these old (European) palaces from the 15th, 16th or 17th centuries. They have been enlarged and restored several times, often substantially. Nonetheless, the harmony of the whole has been preserved. And they remain habitable. Europe is likely to resemble them.”