A Continent At The Breaking Point
Browse through a bookstore in Paris or Berlin, and you get the feeling that European thinkers are hitting a new theme. On one shelf is Globalization, by Spanish journalist Joaquin Estefania. It argues that Anglo-Saxon economics has failed miserably in job-starved Continental Europe. On the next shelf, you might find Will France Disappear? by French sociologist Jean-Claude Barreau, who contends that Europe is barreling toward monetary union much too fast. And in a corner, a group of intellectuals are discussing "The Capitalist Threat," a widely read Atlantic Monthly article by European-born financier George Soros. Soros theorizes that the discipline of laissez-faire markets may be just as tyrannical as fascism or communism.
Such titles are part of a chorus of complaint rising up on the Continent. Competitive pressures from the global economy, plus constant hectoring from English-speaking business gurus, have pushed Europe into painful reforms, from budget-cutting to corporate downsizing. But with unemployment above 12% in Germany and France and growth stalled below 3% around much of the Continent, many Europeans have started to cry "Enough." Even some of Europe's business elite are questioning how quickly Europe can force itself into the Anglo-Saxon mold of capitalism. "We will stay very different for a very long time," says a top French industrialist.
Indeed, there's a growing sense, among intellectuals and working folks alike, that the Anglo-Saxon formula for global competitiveness runs counter to Europe's notion of a fair and prosperous society. One recent French poll showed that 66% of respondents prefer France's rich benefits and high unemployment to America's low jobless rate and tattered safety net. Agrees Ernest-Antoine Seilliere, president of French conglomerate CGIP: "Here, social security and social solidarity weigh more than efficiency."
Now, the wave of rebellion against further belt-tightening could slow the process even more. Policymakers are likely to choose their battles, watering down radical reform and tinkering instead. The trouble is, if Europe keeps falling behind the rest of the industrialized world economically, its social malaise will only escalate.
Already, there are signs that Europe is in crisis. Continental Europeans have long boasted of their narrower income gaps and lower crime rates compared with the U.S. and Britain. But as unemployment rises, crime does, too. In the region around Ieper, a town near the French-Belgian border where youth unemployment tops 60%, gangs have broken into homes and kidnapped three entrepreneurs and their families in recent months, demanding huge ransoms. In France, armed robbery and other violent crime were up 7% last year.
COLLISION COURSE. Politicians are under mounting pressure from the electorate to slam on the brakes. In early February, a fourth French city endorsed Jean-Marie Le Pen's right-wing National Front Party, which opposes European monetary union and would deport immigrants to create jobs for French citizens. French President Jacques Chirac's popularity is ebbing daily, and unless the economy improves this year, the Socialists could win the parliamentary elections in 1998. There is no doubt they would dial back on reform.
In Germany, Chancellor Helmut Kohl is under bitter attack for proposing business-tax cuts while trimming the welfare state. Recent polls put Kohl's Christian Democratic Union neck-and-neck with the opposition Social Democratic Party (SPD), which seeks to capitalize on growing antireform sentiment. "We can't allow globalization to lead to an unreasonable erosion of the social security system," insists SPD leader Oskar Lafontaine.
Europe's embattled politicians are on a collision course with the captains of industry. Business leaders, newly in love with the concept of creating shareholder value, are already committed to a second wave of restructuring. If economic reform doesn't move forward to their liking, they'll simply send more jobs and capital away. Look at Unilever, the $55 billion Anglo-Dutch consumer products company. On Feb. 11, Chairman Niall W.A. FitzGerald announced his intention to sell Unilever's $4.9 billion specialty-chemicals business, with headquarters in the Netherlands and Britain. Meanwhile, he is making huge investments in China and India. "Europe is increasingly being outperformed by the rest of the world markets," he says.
European leaders who extol speedy monetary union as the solution to the Continent's woes are even rethinking that. In theory, a single market with one currency should be more competitive globally. But slashing budgets to meet the Maastricht Treaty criteria for monetary union is proving too painful. Top German officials are hinting for the first time that the 1999 deadline for EMU's first stage might have to be postponed. "The closer we get to the deadline, the angrier people will grow," says sociologist Barreau. "We have to slow down."
The catch is that only further reform is likely to pull Europe out of its jobless funk. Outmoded regulations stunt the development of the service sector, which could create new employment to offset the loss in manufacturing. For instance, French law protects small shopkeepers from big discounters' competition, so the retail sector remains inefficient. Telecommunications and airlines are just beginning to be deregulated, and financial institutions have yet to experience full competition that would expand the market and create employment.
UNREAL. Yet deeply embedded cultural values block change. Lower-paid service-sector jobs are viewed with disdain. Few Europeans believe in the notion of upward mobility, so they are reluctant to take entry-level jobs or temporary work, fearing they will never rise. For instance, Warner Bros. had trouble recruiting for 160 full-time and 1,500 summer positions at its new amusement park in Germany's Ruhr Valley--despite high levels of unemployment from shuttered coal mines in the region. One reason: Local unemployment offices discouraged applicants, saying the park did not offer "real jobs."
If political leaders are lucky, some of the reform efforts made to date will begin to pay off this year. Thanks to a clampdown on wage increases and a new tolerance of part-time and temporary work, Holland's economic rebound has created 200,000 jobs in the past two years, bringing unemployment down to 6.1%--half the European average. Another economic boost could come from a stronger dollar, which will help European exports. And politicians are praying that a cyclical upturn in 1997 will shave a point or two off unemployment.
But even if that rosy scenario develops, policymakers can't relax. The showdown between a Corporate Europe bent on following in Anglo-Saxon footsteps and a centuries-old tradition of social welfare will only intensify under the pressure of the global market. That could bring the new murmurs over Europe's economic model to shouting pitch.