Western Europe: The High Cost of Living

WESTERN EUROPE

The price of prosperity has come high in Europe, where wages and prices have vied in outracing each other. Unlike the U.S., which is worried about how to keep its economy advancing, Europe has had to worry about how to stop its boom from moving too fast. The Continent was actually relieved by predictions that most economies will slow down in 1965, but it has not relaxed its vigilance against inflation. To prevent further rises in wages and prices, West Germany’s Bundesbank last week raised its discount rate from 3% to 3½%, serving notice that prospering West Germany feels that it is time for some restraint.

Porridge to Pickles. Since such an increase normally attracts foreign speculators, the West German Parliament is expected to pass a 25% capital-gains tax to discourage all non-German bondholders. The reason, says Bundesbank President Karl Blessing, is that the rate rise is meant solely as a warning to West German industry. The nation’s most distinguished economists warned this month that price stability has become Germany’s most pressing problem. Wages rise about 10% every year. Overall prices jumped 2.9% in a year, but the average concealed some rough rises: a 6.7% hike in rents, an increase in the price of butter from 90¢ to $1 per lb., in pork from 95¢ to $1.20 per lb.

All of Western Europe seems to share the problem. French labor and business are chafing under a strict economic-stabilization program designed to lower the growth rate from 7.5% to 4.5%—and prices and wages with it. By imposing a merciless credit hold-down, Italy braked industrial growth from 5% to 1.5% last year. Along with the other problems of its economy. Britain is alarmed by its quickened wage-price spiral. The cost of living has jumped 4.6% in the sharpest twelvemonth rise in a decade, and British housewives this month found that prices had risen for some 3,200 different grocery items, from porridge to pickles.

Communist & Catholic. Wages in Europe are outpacing both productivity and living costs. Since 1958, they have risen 67% in Germany, 56% in France, 72% in Italy, 61% in The Netherlands. Despite this, labor leaders use constantly increasing prices to demand even higher wages. In Italy, 7,000,000 workers will be looking for more in contract negotiations this year, and Communist Labor Leader Agostino Novella last week refused government pleas for a wage truce. In France, Communist and Catholic workers alike are scheduled to strike this week.

Even royalty has been affected by the wage-price spiral. Though Belgium’s King Baudouin and Queen Fabiola cut back their palace staff from 302 to 188, wages have risen so much that the King has been spending almost all his income on upkeep. At his request. Parliament last week voted him a $160,000 raise in salary to $1,000,000 a year. To make sure that he will not be caught in such straits again, Parliament also decreed that Baudouin’s wages, like those of every Belgian union man, will henceforth include an automatic cost-of-living increase.