European integration: slow but sure.
meeting of the Group of Five on 22 September,
at which it was agreed that the value of the
dollar had to be reduced, if necessary with the
aid of intervention? It seems certain that, in
addition to these, the fact that confidence in
Europe was rising while growth in the United
States was waning, led investors to turn away
from the dollar.
Whatever the answer, the fall in the value of the
dollar has, for the time being at least,
considerably diminished the chance of an
escalation of protectionist measures. However,
unless the USA succeeds in significantly
reducing its current account deficit within a
reasonable period of time, we could ultimately
see a rise in dollar interest rates to finance the
deficit, with the inevitable consequences for the
world economy.
The growing confidence in Europe is not
primarily a result of a strikingly successful
economic performance. Growth in the
European Community in 1985, at 2.3%, was
relatively low, unemployment was still rising,
though not quite so fast. Of greater importance
in terms of the future is that a more healthy
situation has been reached in areas such as
public finance, balance of payments and
inflation. Furthermore, industry is in a stronger
position, in part thanks to several years of
moderation on the wages front, and this,
together with lower interest rates, has created the
conditions for greater investment. And
investment is the key to greater prosperity and
an adequate level of employment in the future.
DOLLAR RATE IN GUILDERS
4.0
3.5
3.0
2.5
2.0
1.5
1981
1982
1983
1984
1985
1978
1979
1980
1970
1971
1972
1973
1974
1975
1976
1977
GLD/S MONTHLY AVERAGES
