Europe's One Road To Prosperity

It's official. As Europe's last lingering vacationers complete their reentry, summer, 1995, will go down in the books as the first one in four years in which the European Union was not shaken by a crisis in currency and bond markets or some spectacular blow to the cause of integration. Reassuring? Hardly, given the sputtering sounds already coming from the next round of Europe's business cycle.

In France, a sinking franc and bourse testify to the lack of credibility of the new government. Despite its rhetorical commitment to economic reform, one free-market economics minister is already history. A new boss takes office at France Telecom after one predecessor was sacked in August and another quit before even taking office in September, victims of government waffling on plans for needed privatization.

Many of Europe's leading companies are no better off. Italy's high-tech hopeful, Olivetti, is asking investors for yet another capital infusion, even while it searches for a way to compete in the computer business. In the Netherlands, aircraft maker Fokker looks for another government handout to survive in the face of overseas competition. And in Germany, Daimler Benz' loss of $1.06 billion in the first six months of the year shows Germany's premier manufacturer is still struggling to cope with the strong mark and high costs.

For now, the global economic upturn is helping to boost exports and mute the widespread feeling of crisis that made Europe's last few summers so rough. But those business leaders and politicians looking to the upturn to remove the necessity for tough reforms are taking a big risk. European businesses suffer from lagging competitiveness. Because of excessive wage levels, high social spending, and inflexible work rules, many of the countries in the European Union are far down in the ranking of global competitors compiled by the International Institute of Management Development.

As U.S. business has learned, economic recovery in today's global economy means relentless restructuring, at corporate and government levels, driven by market forces. That's not a lesson Europe has ever had to learn until now. Moreover, it's a lesson that Europe's business and political class seems to want to ignore, preferring to concentrate instead on abstract goals such as monetary union. But that's the only way Europe can move towards lasting prosperity.

    Before it's here, it's on the Bloomberg Terminal.