The Missing Link In Europe's Comeback

It could be global competition. It might be the impending euro. Either way, Corporate Europe looks increasingly impressive as companies find inventive ways to get leaner and more efficient. The tragedy is that Continental governments are lagging far behind in the drive for efficiency.

The latest trend is hiring temporary workers. Facing rigid labor markets, European companies have taken to hiring temps on a massive scale. One in 10 European workers is now a temp. In Spain, where labor law is the least friendly to business, over 25% of jobs are temporary posts. In Denmark, where the shift to temporary workers began some years ago, practically all new hires are temporary.

Entrepreneurship is back, too. In 1997, Europe did 90 leveraged-buyout deals worth over $7 billion. So far this year, three $1 billion deals have already been done.

On the Continent, the push for global competitiveness is from practical businesspeople looking to boost their bottom lines and competitiveness. In a sense, that's healthy: It increases the chances that the momentum will endure.

What the formula lacks is government downsizing and restructuring. True, European governments have been shrinking their budget deficits in preparation for the euro single currency. Yet much more must be done. Paris recently intervened to end a nationwide truckers' strike. Strong-arming French companies into giving 6% pay raises made them less competitive in an industry that's about to be opened to fierce international competition. Likewise, Bonn is toying with increasing value-added taxes to raise revenue. This would threaten a broad-based domestic recovery just starting.

No magic here. If Europe's renaissance is to succeed, corporate progress must be matched by the government. What's needed? Lower taxes, fewer rules, and less government.

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