European Leaders Split Over Economic Crisis

EUROPEAN leaders are looking beyond their special summit meeting in Birmingham on Oct. 16 and preparing to address the economic realities that underlie the political problems they face.

At the top of their post-Birmingham agenda is the threat that the 12-nation European Community, regardless of whether the Maastricht Treaty on European union is ratified, will be sucked further into what some economic analysts say is an encroaching world recession, with growing unemployment and slackening growth its key features.

Even in Germany, which has the EC's most powerful economy but is burdened by the economic problems of reunification, the government is preparing for widespread layoffs in key industries.

The German Automobile Association recently warned that up to 200,000 jobs would be lost in the country's car industry, with the giant Volkswagen company certain to have to cut production. Retrenchment in Germany's chemical industry and other key manufacturing sectors appears inevitable, economists say.

"The future of Maastricht is only one of our problems. Our real difficulties cut deeper. They are mainly economic, and carefully drafted communiques are not going to solve them," says a European Commission official in Brussels.

The official cites growing unemployment as the chief symptom of the EC's economic troubles and says wrangling over whether or not to ratify Maastricht was a "sideshow" by comparison.

He notes that in Britain, France, Spain, Italy, Portugal, Greece, and Denmark unemployment is 10 percent or higher. The total number without jobs across the Community is 16 million and rising. Figures like these are prompting leading analysts to quarrel with the economic priorities of EC governments.

"What is actually happening in Europe is that the world recession is taking hold, that unemployment is rising, and that Europe has become the highest-cost economy in the world," said William Rees-Mogg, former editor of the London Times and a specialist on economic matters. He added that Prime Minister John Major had failed to address this at the ruling Conservative Party's conference Oct. 6-9.

There is sharp disagreement, however, about the best way to face what Lord Rees-Mogg calls "a general European crisis."

In Britain, the Conservative Party is deeply split. Mr. Major wants to see the Maastricht Treaty ratified quickly and economic integration proceed apace so that Britain can take its place at what he calls "the heart of Europe." But Margaret Thatcher, his predecessor, spoke on Oct. 7 for a large wedge of the party when she slammed the treaty as "ruinous" for Britain and a "vision of yesterday."

Senior ministers in Major's cabinet are at odds over the best approach to British and European economic problems. Friends of Peter Lilley, the employment secretary, say he thinks that Britain, having quit the European Exchange Rate Mechanism (ERM) on Sept. 16, should stay out, and is advising the prime minister accordingly.

But John MacGregor, transport secretary, who is seen by party insiders as likely to be appointed chancellor of the exchequer soon, says he wants Britain back in the ERM "as soon as possible."

Divisions of opinion are widespread elsewhere in the EC. German Chancellor Helmut Kohl and President Francois Mitterrand of France, speaking ahead of the Birmingham summit, said that Maastricht should and would be ratified. But economists, bankers, and industrialists in both countries find themselves in opposing camps.

Some say that action by individual governments, rather than jointly planned EC measures, will be needed to lift Europe out of recession.

In Germany some economists want the Bundesbank in Frankfurt to move swiftly to lower interest rates.

Meanwhile, Giorgio Garuzzo, chief operating officer of Italy's Fiat car company, is putting his faith in full implementation of the Maastricht Treaty as a prelude to EC economic integration.

"In particular we would like to see a single currency in Europe as soon as possible," Mr. Garuzzo said, noting that monetary unification would decrease the cost to Fiat of managing currencies across frontiers, and would help to create a "homogeneous financial market of much greater size."

Britain, which holds the EC presidency until the end of 1992, seems unlikely to spearhead initiatives to boost the kind of growth that will create enough jobs to hold European unemployment at current levels, much less reduce it.

According to Rees-Mogg, the Major government is determined to reduce public expenditure and raise public-sector productivity. The more successful it is, the fewer public-sector jobs will exist in the mid-1990s, he says. Rees-Mogg says greater efficiency in the private sector is likely to increase unemployment rather than curb it.