Leading Article: Europe must face reality

IT IS a relief to find a European summit talking about real issues instead of wrangling over the arcane, and now mostly irrelevant, texts of the Maastricht treaty. The Community has only recently bumped to earth from the clouds of Europhoria on which that treaty was negotiated. At the Copenhagen summit this week it is discussing jobs and the betrayal of Bosnia. Both subjects confront it with failure, recognition of which is a precondition of redemption. Both subjects also concern the people of Europe. If the EC is to rescue itself from the ignominy into which it has fallen, its first task is to reconnect with reality.

That reality looks at the moment undeniably grim. The most basic issue is whether the Community is pricing itself out of world markets. If it is, it faces long-term decline - with all the social and political stresses that entails. Enlargement, institutional reform, a single currency and other issues which have been occupying it of late will lose their relevance unless this question is addressed. As John Major said yesterday, Europe must compete or contract.

The figures point ominously towards contraction. European unemployment is no longer cyclical, but structural. Over the past 20 years it has risen steadily, each recession leaving it higher than the previous one. By next year, 17 million people - 12 per cent of the workforce - will be out of work. The main reason is the very high cost of labour in Europe, with all the social padding that surrounds it. Formerly, the cost could be justified by high skills and high productivity; but other countries can now offer both more cheaply. In former Czechoslovakia, labour costs are a tenth of those in Germany, and in Thailand a hundredth; yet workers in both countries are educated and capable of using the latest technology to produce high quality goods.

This means that the familiar solutions to European unemployment, such as lower interest rates, public works and even, over a longer period, better education and training, may improve matters but will not solve the underlying problem. Europe must generate more money or settle for a less comfortable life.

The United States has found a partial answer in an unregulated labour market and poor social provision. Instead of going on the dole, American workers take low-paid, insecure jobs. The result, as Jacques Delors pointed out yesterday, is that the US has created 30 million new jobs over the past 20 years compared with Europe's 9 million, at roughly similar growth rates. But European politicians shudder at the thought of introducing American conditions into Europe, fearing similar levels of crime and social breakdown. The French are also proposing an answer, in the form of still more protectionism: but that would exacerbate the problem by removing pressure to become more competitive.

There are no easy answers or quick fixes. Europe can prosper only if it finds a profitable place in a rapidly changing world economy. This means allowing each country, each area and each industry to discover what it can do best. Most new jobs will not be in manufacturing, but in services, which can now be traded more than in the past. Financial services, data processing, entertainment and tourism, for instance, are international industries and big earners.

The key is adaptability. Education and training are vital preconditions, not solutions in themselves. Lower wages in some sectors would help, but not without higher productivity in others. More selective welfare provision is probably unavoidable; but that alone will not make Europe competitive. What European governments and Community institutions must focus on is creating an environment that fosters rapid responses to changing conditions. Europe is failing to create jobs because it has wrapped itself in habits, regulations and protective mechanisms that make it too slow on its feet. Encouragingly, it is now starting to tackle the problem.