The plans painstakingly prepared by the master builders of Maastricht now lie torn to ribbons. The once mighty mark is showing signs of wear under the strain of German reunification. The French franc, which wanted to take advantage of the circumstances to show a degree of independence, was at once bitterly reminded of the tale about the frog that wished to be as big as a bull. The monetary union that the members of the European Economic Community were to set up together before the end of the millennium now looms terribly distant on the horizon, and not only because of legal difficulties the treaty faces in Germany. Of the twelve countries within the E.E.C., only Luxembourg now fulfills all the criteria required to join the projected union. Meanwhile, the gospel of free trade is being questioned m “respectable” quarters, and Parisian heretics even dare to plead in favor of protectionism–if not national then at least European.
Such disorientation within the establishment is due to the deepening economic crisis, strikingly illustrated by the spread of mass unemployment. The latest report on the subject from the Organization for Economic Cooperation and Development (O.E.C.D.) admits that, with 36 million jobless amid the twenty-four member countries (which include the United States and Japan), or roughly 9 percent of the labor force, unemployment beats all previous postwar records. Among the twelve European members of the E.E.C. the situation is even worse, the share of the jobless averaging 12 percent and reaching over 20 percent in Ireland and Spain. As always, official figures belittle the real plight, since they do not include those working part time against their will or those who, after years on the dole, have been more or less permanently driven out of, or written off, the labor force. The establishment is getting perturbed because unemployment is approaching potentially explosive proportions.
What makes the situation so grave is that the classical downturn in the business cycle comes on top of a structural crisis. The depression is still gaining ground in Germany and France. Throughout Western Europe the contraction has been aggravated by the high interest rates imposed by the Bundesbank to attract foreign investment and to check inflation by keeping wages down. German bankers viewed the high rates as a way to cope with the takeover of the eastern regions, but for the other countries of the E.E.C., trying to extricate themselves from the depression, these were catastrophic deflationary measures. And no country could lower its own rates so long as its currency was tied to the mark in the exchange rate mechanism (E.R.M.) within the European Monetary System. Speculators in currency saw the contradiction, and their trading last autumn precipitated a tide that swept the lira and the pound sterling from the monetary system and forced the devaluation of the Spanish peseta, the Irish pound and the Portuguese escudo. Although interest rates are now much lower, the same contradiction was at the heart of last week’s confrontation between speculators and central banks.
The economic debilitation is so serious because it affects bodies badly weakened by previous bouts of the disease. Ever since the mid-seventies, which marked the end of the postwar era of unprecedented prosperity, employment has risen during periods of recovery but has not come close to where it had been at the beginning of the previous downturn. Mainstream economists assured us that restructuring would not last long and would be limited to old sectors of industry such as coal, steel and textiles. Indeed, for a time the service sector did provide an outlet for some of the surplus labor. But our perestroika proved both permanent and all-pervasive. It is now the turn of banking and insurance to have staff reduced through “rationalization.” Unemployment is no longer just the scourge of the young, the female, the unskilled. One of the reasons for the present outcry is that the sacrosanct “middle class” is badly affected.