New Europe Salutes Clinton, With Fingers Crossed
The view from Europe is anxious. Europeans from one end of the old Continent to the other are worried about their deepening recession and about the incoming Clinton Administration’s avowed combativeness on trade questions.
“If they’re combative, it’s precisely the wrong signal. A more combative atmosphere inevitably will result in frictions that will have a very negative effect on business and confidence,” says Peter Sutherland, chairman of Allied Irish Banks Ltd. and a central figure in the movement of 12 European countries toward the single market that began this New Year’s Day.
“There’s nervousness in Europe that Clinton is an advocate of punitive measures in trade to ensure access to markets,” says Laurence Kantor, vice president and chief economist for Europe of J.P. Morgan & Co.
The fears reflect European weakness, which may come as a surprise to many Americans. We have been told for years that the end of 1992 would see unified Europe, with a population of 360 million--roughly 50% more than the U.S. population--as a new economic power in the world.
Instead, the present finds Europe’s economies weak and looking for help from the U.S. recovery. The best hope for Germany’s economy right now is “improvement in the U.S. economy,” writes Norbert Walter, chief economist of the Deutsche Bank. The Europeans need the U.S. market and they need the general lift to the global economy that U.S. recovery can bring. And that means Clinton will be holding trump cards in any negotiations with Europe over trade and economic cooperation. How well he plays those cards will depend on his Administration’s understanding of the depth and nature of Europe’s troubles--and also of the extent of its long-term opportunities.
Major U.S. business leaders, from AT&T;, duPont, Chevron and other companies, told London’s Financial Times recently that whatever the short-term troubles, they’re investing in Europe for its future promise.
But first the troubles. The currency difficulties that occasionally make the headlines in America are only a reflection of deeper problems in Europe’s economies.
In France, for example, the banks, many of them partly owned by the government, have major credit involvement with commercial real estate in Paris and other cities where the collapse of prices is accelerating because of the high interest rates France is now maintaining to uphold the French franc in relation to the German mark.
Bankers from Los Angeles to Tokyo have taken write-offs on commercial property; now France’s banks face the same, but at an inopportune time. France’s unemployment is 11% and French farmers, fearing competition in global markets, are weakening the government, which faces elections in March. Bankers in London murmur privately that France may be the next economic disaster area.
Germany has well-known problems with the costs of reunifying the former East and West Germanies. Its central bank is keeping interest rates high--over 9%--to curb inflation, but meanwhile the world’s third-largest economy is sliding into recession.
And Germany has other, longer-term problems that are not yet widely recognized. Like the rest of Europe, Germany lags technologically behind the United States and Japan.
“Germany has done little to make the transition from traditional manufacturing, steel and autos, to high tech industries,” notes economist Kantor. “And now even its high end automobile makers, Mercedes and BMW, are meeting severe competition from Asia--not in Europe where there are still restrictions on imports but in the U.S. market.”
The global competitiveness of even the best of Europe’s economies is questioned, in other words.
No wonder Europe’s economic experts don’t share the doubts of their American counterparts about the U.S. recovery. The Europeans see that U.S. industry has undergone much of the restructuring and shifting of resources that are the keys to long-term economic success. U.S. industry is now capable of fresh growth and taking on new markets. But Europe’s companies for the most part are only at the start of that process.
For the immediate future, that means the U.S. economy will be growing this year and next while Europe remains in or near recession. The strongest European economy may well be the United Kingdom, because British industry has also suffered through reforms.
The U.S. dollar will be relatively strong, vacations in Europe will be affordable once again but investments in European companies should be taken with a two-to-three-year time horizon.
The danger is that just as hard cases make bad law, so hard times may make bad policies. The present U.S. trade surplus with Europe will shrink or become a deficit as we prosper and they languish. And Europeans fear that could goad Clinton’s advisers into retaliation that would beget reaction and send the world into a trade war spiral like that of the 1930s, when Herbert Hoover thought to protect U.S. farmers by cutting off their export markets and bankrupted them instead.
So Europe is pleading with Washington to keep an eye to the long-term, where opportunities are considerable. The European Community has come a long way toward its goal of a single market, like that of the 50 United States. “In many ways, the European Community has more liberalized markets than the U.S.,” says Sutherland, a 45-year-old Irish lawyer who served as an EC commissioner when the single market was first proposed in 1986.
Today, customs posts and banking restrictions have been eliminated among the 12 countries, and students can go to universities in any country on the same terms as local residents. American economists agree with Europeans that the benefits of unity will come to Europe over the course of this decade.
Meanwhile, everybody wonders about the new world leader. “I spent some time with Clinton a few years back,” says Sutherland. He was impressed. “I found him a vacuum for information, always asking questions.”
Just so. In 1993 he can provide some answers, and not only to anxious Europeans.
