Euro Is Just the Start of Ferment on the Continent

Europeans are thinking expansively, even excitingly, these days. Having achieved a single currency, the Continent is embarking on a more contentious and competitive future.

The World Economic Forum here last week heard of new directions and new ambitions--in world affairs, defense, even political integration. Jacques Santer, president of the European Commission in Brussels, said he foresees the 15-member European Union expanding ultimately to 25 member states, with 500 million people.

The former Luxembourg prime minister said Europeans, who already have provided 75% of all the foreign aid to Russia and the other former Soviet states this decade, are ambitious to do more in world affairs. “Europeans are seeking their own role in global security, even in a military sense,” Santer said.

Romano Prodi, former prime minister of Italy, also sees Europe turning to defense issues now that the euro, the 11-nation common currency, has been launched. “We have done the money and now we will do the sword,” Prodi said poetically.

Important people are even talking about a single political umbrella for Europe. “Monetary integration must be accompanied by political integration,” said Hans Tietmeyer, president of the German central bank. “Probably we need a constitution.”

But a group of younger business people issued a “Wake up, Europe” call, pointedly telling Santer, Tietmeyer et al. that Europe needs a different economic future.

“We’ve had 50 years of harmonization; we need economic growth,” said Fields Wicker-Miurin, a London-based vice president of consulting firm A.T. Kearney.

Her colleague Hubert Joly, president of Electronic Data Systems in France, noted that such policies as subsidies for farm, labor and other interests have led to high unemployment--the EU average is 11%--and threatened pension and health-care systems. And they have created a dearth of capital for entrepreneurs trying to start businesses.

The “Wake up, Europe” people have a point, but things are changing fast thanks to the euro. The single currency means there will be more competition inside Europe.

“High wage costs and high prices in countries such as Germany will be exposed to competition. Factories will be rationalized, unemployment problems will need to be addressed,” said Helmut Maucher, chairman of Nestle Inc., the food company based in Switzerland. “We will have interesting decisions.”

Even the newly elected Social Democratic German chancellor, Gerhard Schroeder, lamented his country’s high labor costs, lack of flexibility in working hours and “a tax system that places undue burdens on companies and households.”

Schroeder’s government proposes to lower corporate taxes to 35% of profits, from 48%. He has said nothing yet about personal taxes, which are even higher than those on business. French Finance Minister Dominique Strauss-Kahn also is trying to lower taxes on business.

Clearly the European business climate is quickening. Merger announcements are constant among banks, insurance and industrial companies. French banks Societe Generale and Paribas are merging; Germany’s Deutsche Bank has reached out to the United States to acquire Bankers Trust.

Germany’s DaimlerChrysler Aerospace almost merged with British Aerospace, which instead merged with GEC Marconi, a British defense electronics firm. A combining of European defense contractors into a single large company, including Matra of France, may yet happen in the next year or two.

The European merger derby may not be quite as jarring to employees as restructuring has been in America. Europe’s powerful unions are consulted and have been approving the new mergers. “We have what are called ‘works councils’--the managements must consult with us on all policies affecting employment,” says Ursula Engelen-Kefer, vice president of the German Trade Union Federation.

Nonetheless, conflict will mark Europe’s restructuring. Germany’s big metalworkers union is already staging strikes of a few hours each day in an attempt to wring wage increases larger than 3% from employers.

And corporate suites are suddenly insecure. Just Friday, the chairman of BMW, Bernd Pischetsrieder, was ousted after the bungled acquisition of Britain’s Rover car company.

Significantly, U.S.-style entrepreneurship and venture capital are slowly rising in Europe. Stocks of small growth companies are being traded on new exchanges. Germany’s Neuer Markt has 63 companies, France’s Nouveau Marche has 74, the Brussels-based Easdaq has 39.

Capital-hungry French entrepreneurs still must travel to London in search of financing, but ultimately they are the force that can help France reduce its nearly 12% unemployment.

And shifts in business are only indicators of deeper, historic changes occurring in Europe.

Germany’s newly elected government has introduced a policy granting German citizenship to foreign workers and their families after eight years of residence instead of 15. The foreign worker community is largely Turkish.

The policy is a new direction in a country as well as a continent that has sent many immigrants to America but has not itself favored immigration in the past. To be sure, there is controversy over the measure, but controversy is an inevitable part of the ferment occurring in Germany today.

The arguments reflect new thinking in a European Union that sees itself taking in not only Poland, the Czech Republic and Hungary in the next decade, but also Bulgaria, Romania, Slovakia, Slovenia and perhaps Turkey and countries of North Africa and the Middle East. Ancient maps of the old Mediterranean civilization are suddenly instructive again.

Meanwhile, the United States is looking to Europe as one pillar in what for the moment is “a two-pillar world”--to use a phrase current in the Clinton administration--to help Washington lead the global economy.

In the short term, that won’t be easy. As the euro’s low and uncertain value in world markets today indicates, Europe has a lot of economic reforming to do.

But the trends are promising. Europe will probably be a strong and stable power in the world. Washington will not find it a silent partner, but it could be a pillar of strength.

James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.