Europe Is Weaning Itself From U.S. Economy : Trade: In the past, an American recession would hit the continent hard. That’s starting to change.

Not long ago, the conventional wisdom held that when the U.S. economy caught cold, Europe got pneumonia.

Not so any longer. Although Europe has not developed total immunity to economic germs from across the Atlantic, it is growing increasingly self-sufficient, ever less dependent on the United States to buy its products and fuel its growth.

Europe’s growing independence could hardly have come at a better time. The United States seems unable to pull itself out of the slump that began at the end of 1990.

To be sure, the short-term economic outlook in Europe is several tints short of rosy. But these problems are made largely at home, not in America.

Great Britain remains mired in a recession that is far deeper than in the United States. Growth in France and Italy has slowed practically to a standstill.

And hard times are even catching up with Germany, that economic locomotive that was propelled last year by a burst of consumer demand in the six provinces inherited from the former East Germany.

“The boom is over, and Germany is arguably in a recession already,” says Christopher Mills, who follows the European economy from the London office of the forecasting firm DRI-McGraw Hill.

The British recession was triggered by high interest rates designed to cool the overheated economy of the late 1980s.

Likewise, an interest-rate increase in Germany last month, designed to combat 7% annual wage inflation, may push that economy temporarily over the edge. “To raise interest rates when the economy is poised on the brink of recession is something only the Germans could do,” Mills says.

Many European countries have boosted their interest rates in lock-step with Germany. Otherwise, Germany’s high rates would attract foreign investment and drive up the value of the German mark against other European currencies. But as in Germany, the higher rates are squeezing potential economic growth.

If Europe’s sluggishness is not labeled “made in America,” it is because recession is one of the few things the United States has been unable to export. U.S. exports grew by nearly 7% last year even as its total economic output shrank, according to the Organization for Economic Cooperation and Development.

Much of the new sales were to Europe. “We are becoming an export-led economy,” says Jerry Jasinowski, president of the National Assn. of Manufacturers, pointing to a doubling of manufactured-goods exports in just six years.

At the same time, Europe is relying less and less on the United States as a market for its own goods. A year before it is scheduled to take full effect, the 12-nation European Community’s effort to tear down most national barriers to trade by the end of 1992 has already boosted commerce within Europe.

Exports of British goods nearly doubled between 1985 and 1991, according to the International Monetary Fund. But the United States bought only 14% of British exports last year, down from 15% six years earlier. Meanwhile, British sales to the other 11 EC nations grew from 49% in 1985 to 57% in 1991.

The trend is even more pronounced in continental Europe. The U.S. share of German exports fell by nearly 40% between 1985 and 1991, and for France the figure was 31%.

Some of the decline in share of exports to the United States reflects the weak U.S. economy rather than increased trade within Europe. In that regard, and to the extent that Europe is investing in the United States, the continent is feeling the backlash from the U. S. slump.

Germany’s exports to the United States fell from $6.6 billion in the last three months of 1989 to $6 billion in April, May and June of this year. British exports fell by a similar amount.

Some European companies have felt the sting more sharply than others. Luxury car makers have taken a particular beating. Jaguar sales in the United States are down 40% this year, and Porsches are selling at only 20% of the rate of four years ago. Peugeot, which makes middle-of-the-line cars, announced recently that it was pulling out of the U.S. market, in part because of weak sales.

European chemical companies have likewise been hurt by the U.S. slump. Germany’s big three--BASF, Bayer and Hoechst--say softness in the U.S. market cut their 1991 profit. BASF Chairman Jurgen Strube says much of his company’s business in the United States “is still feeling the effects of the stagnation besetting our customer industries.”

In special jeopardy are European companies with heavy investments in the United States.

Douglas McWilliams, chief economic adviser to the Confederation of British Industry, says 30% of the earnings of companies listed on the London stock market can be traced to the United States. British-owned companies in the food sector (such as Cadbury-Schweppes) and the leisure sector (Hilton Hotels) are particularly exposed, McWilliams says.

Many European economists expect that the U.S. economy, now benefiting from short-term interest rates lower than at any time since 1964, will turn around quickly.

Ernst Moritz Lipp, chief economist of Dresdner Bank in Frankfurt, predicts a new breeze to blow as early as February or March, as soon as consumer confidence picks up. “My perception of the U.S. economy is that the psychology is diverging from the reality,” Lipp says. “Consumers can’t be persuaded otherwise.”

DRI-McGraw Hill, a U.S.-headquartered forecasting firm with offices all over the world, recently revised its U.S. forecast down.

“There could be a double dip,” says Hans Jaeckel, chief economist in DRI’s office in Frankfurt. But DRI is still betting on economic growth of about 2% in 1992, almost all of it in the second half.

In Britain, by contrast, Jim Cunningham, Barclays Bank’s senior economic specialist for North America, is betting on a second recession.

For two years, Cunningham says, U.S. interest rates have been higher than necessary to combat inflation. “In retrospect,” he says, “the inflation threat died in 1989. The Fed was looking to fight inflation that didn’t exist.”

But if the Federal Reserve misjudged the economy, he quickly adds, so did almost all other analysts. “In fact, the Fed could have done a lot worse.”

Especially in an election year, whether the U.S. economy is contracting again has enormous political significance. But in economic terms, Europe is much more concerned about America’s long-term prospects.

“There is no reason to panic” over the U.S. economy’s current doldrums, says Norbert Walter, chief economist of Deutsche Bank, Germany’s largest. The proper course, he says, is not to pump up the economy to create a veneer of prosperity--always a strong temptation in an election year--but to address the problems that threaten the U.S. economy’s long-term prospects.