The Credit Crisis: A European View

THE CREDIT CRISIS: A EUROPEAN VIEW Susan Strange Xn one of those apocryphal tales about Calvin Coolidge, the president was journeying by train one fine spring morning when his traveling companion broke the silence, observing that some sheep in a passing field had been shorn mighty early that year. "Uh," replied Silent CaI, "looks like it from this side." A salutary reminder, perhaps, that one should never assume too readily that things will look quite the same when seen from the other side. What follows is a European view of the crisis in the world market economy—although I am not at all sure that "crisis" is really the right word, since it implies that prosperity is right around the corner (as Coolidge's successor kept promising). The situation, as I see it, suggests a chronic condition, in which recovery is by no means certain. Europeans in general have a somewhat different perception of the situation than Americans. After suggesting why this difference may have arisen, I shall present some reasons why credit, not debt, is the problem, and why the drying up of new bank lending is much more to be feared than the spread of protectionism in trade. I shall conclude by considering some of the measures that might be taken to prevent the further deterioration of the world economy. The world economic "crisis" has three interrelated aspects: unemployment as a reflection of slow growth and sluggish investment; flagging trade resulting from the mismatch of the buyers' ability to pay and the Susan Strange is professor of international relations at the London School of Economics. She spent more than ten years at Chatham House, where she began writing books and articles on international monetary matters. Earlier this year she spent two months at the European University Institute at Florence and has just returned to London from the University of Minnesota-Twin Cities. 171 172 SAIS REVIEW sellers' output of goods and services; and unstable money producing uncertainties that depress both employment and trade. Of the three, unemployment unquestionably has the greatest and most immediate impact on the lives of ordinary families and on the fortunes of the governments that may be held responsible. Thus, any international differences in experience with unemployment are likely to show up in differences of opinion concerning the general state of the world economy . There is little doubt that the years from 1973 to 1978 were much kinder to American job-seekers than to Europeans. To be more precise, changes in employment prospects were positive in the United States and negative in Europe. There are many social, and some technological, reasons for this, but the figures are quite clear. Employment over that period in American industry increased at an average annual rate of 1 percent. In the services sector, it increased even faster—an average of 2.9 percent a year. Only in agriculture, where inflation increased the price of inputs (fuel, fertilizer, machinery) faster than the average return on produce sold, was there a net average loss ofjobs (0.3 percent annually). The loss of jobs in the agricultural sectors of other industrialized countries was much greater. Even in Great Britain, where everyone had assumed that the shedding of labor in farming was a thing of the past, there was an average annual loss of 1.9 percent. This decline was almost as great as that inJapan (2. 1 percent), but still less than in West Germany (3.8 percent) and France (4.2 percent). While workers leaving agriculture in the United States could find jobs in services or industry, where new employees were still being hired, this was not the case in Europe. There, the average annual decline in total employment in industry in West Germany and the Netherlands was 2.2 percent, in France 1.2 percent, and in Britain 1.5 percent. These figures are far more telling than a simple comparison of unemployment rates, which are notoriously subject to different methods of counting and to variations, even when computed over time within one country. Nevertheless, it is true that the United States has had a higher proportion of the total workforce unemployed as compared with European countries for almost...