Europe's troubled steel makers are facing a variety of unpleasant choices as they try to steer their industry out of not only a prolonged recession, but a web of bitter, complicated international problems.

The worldwide recession in the steel industry is almost two years old. But the situation looks most grim in Europe because the problem runs much deeper than merely a slackening in global demand.

Of course, there are exceptions, but to a considerable degree many of Europe's steel mills are old and use obsolete equipment. This is especially true in the Lorraine steel district in Europe

France, in districts not far from Liege in Belgium and even in West Germany's Saarland.

At the same time, plants in France, Britain and Belgium - and, to a lesser extent, Germany and Holland - are vastly overmanned by some of the world's most costly labor forces, say industry specialists.

Both factors push up the price of European steel to the point where it becomes increasingly less ocmpetitive on world markets.

Then there is the problem of Japan.

less than ten years ago, europe dominated world trade in steel with some 70 per cent of all exports. Japan had 30 per cent. Today's those percentages are reversed.

The Japanese have built up an awsome capacity to produce some 160 million metric tons of steel annually. But demand has also fallen off in Japan's home market due to the recession, so that Japanese steel makers now have enormous excess capacity for which they must seek even more overseas markets.

The Europeans accuse the Japanese of selling steel below production costs just to get rid of it and keep plants working and employees from getting laid off under Japan's so-called life-time employment system.

The Japanese deny this. But it is clear that they are sweeping the Europeans out of vast amounts of business not only in the nine-member European Common market itself but among Third World countries that have been traditional buyers of European steel.

On the other hand, one specialist in Brussels acknowledges that in many ways the Japanese have done at least some of what the Europeans need to do.

Despite taking on huge debts reportedly equal to 140 per cent of a year's turnover - a figure Europeans call "unimaginable" and one that is more than three times the debt ratio of German industry - the Japanese "have been ruthless in knodking down obsolete plants, streamlining new ones and building them along the coast," the apecialist says.

The Europeans must modernize and in some cases consolidate their plants for more efficiency, reduce the work force and find new jobs for displaced workers.They also must avoid any "suicidal" increase in capacity in an area that already has too much capacity for current and even near-future markets.

But in many European countries, Unemployment is already high, and big new layoffs in the name of efficiency or new government bailouts are risky when many of the governments themselves are operating on very thin majorities.

Many steel-producing areas already are depressed, and attrracting new industry to those areas will be difficult. Retraining is also expensive, and the wealthier countries such as Germany do not like paying too much for what they view as the mismanagement of other countries.

Cooperation among the Europeans - some of which, like Britain and Italy, have predominantly nationalized industries while others do not - is tense at best.