The British Isles and Scandinavia are falling under the long shadow of stagflation with its devastating combination of slow or nonexistent economic growth and high unemployment and inflation.
Britain's already deep recession has not yet reached bottom, even though its manufacturing output will have fallen by more than 6 percent this year and its unemployment rate will have reached a post-depression record of nearly 10 percent. Gloomy economic forecasters expect the recession to last at least another year and unemployment to keep rising to levels that could pose a political danger to conservative Prime Minister Margaret Thatcher.
Moreover, the most recent reports by a number of respected analysts show that Thatcher's strict monetarist policies have not net yet squeezed down the money supply in Britain by nearly as much as was believed necessary to bring inflation down to simple figures. After peaking around 22 percent this summer, the inflation rate has slowly decreased to 17 percent, still among the highest for major industrialized countries.
Profits also are are still falling and factories closing as British businesses continue to slim down drastically on Thatcher's survival-of-the fittest fiscal diet. The one ray of hope for the rest of this year is that the government will finally reduce Britain's high government interest rates (still 16 percent) and that the sky-high value of the pound sterling (now around $2.40) will finally start to dip. Then business will be able to borrow badly needed cash more cheaply and export goods at more competitive prices.
There also are the first signs that unionized labor, facing the prospect of still more lost jobs if more firms are forced to the wall, may settle for significantly lower pay raises in this winter's round of bargaining. The national average for wage increases could fall from over 20 percent this year to near 10 percent next year.
That could help businesses and push down inflation a little more. It would also make for harder times for families whose wages fall well below inflation. This, plus unemployment and increasingly disillusioned businessmen, could severely test Thatcher's political mettle this winter.
In nearby Ireland, new Prime Minister Charles Haughey has had even more difficulty trying to impose his brand of monetarism on an overheated economy that is falling fast into recession. Unemployment has climbed to more than 9 percent of the work force and inflation is hovering near 20 percent.
Although he hoped to hold back runaway government spending and borrowing. Haughey has succumbed to political pressure to spend still more government money to create more jobs for the country's fastgrowing population. But nobody yet knows where the money will come from.
In Denmark, the most economically troubled Scandinavian country, unemployment is up to 7 percent and inflation 14 percent, both alarmingly high figures for Scandinavia. What's worse is that Danish families, businesses and the government have all plunged deeply in debt trying to maintain the rich life and generous welfare state to which they had grown accustomed.
Danish Prime Minister Anker Jorgensen, who heads a shaky minority government, has been unable to muster sufficient support for government spending cuts -- including reduction in welfare state benefits for better off families -- that more and more Danish government officials econonomists, bankers and business leaders are advocating.
A similar dilemma faces Swedish Prime Minister Thorbjorn Falldin, whose coalition government appears to be paralyzed in the face of growing fiscal problems by its slender one-vote majority in parliament. He also will be seeking support this autumn for welfare state program spending cuts to reduce a growing government budget deficit and foreign debt that are believed to have helped push inflation well over 10 percent.
Sweden which has lagged behind world economic trends in recent years, only just recently recovered from its last recession. But economic forecasters there fear the next recession may not be far away. Only government subsidies are propping up Swedish shipbuilding, and other industries also are having increasing difficulty competing with lower-overhead foreign rivals.
Although Norway has plenty of money from its North Sea oil to prevent any serious economic slide, its government is trying to decide how to use that money to prop up or replace its own aging traditional industries. But most Norwegians are more concerned about income and price inflation.
A wage and price freeze that ended last year had brought inflation way down and a carefully negotiated national wage agreement promised to keep it there for a while. But much bigger wage increases won by North Sea oil workers threatens to undo that bargain and push inflation way up again. It has already climbed about 10 percent.
Both the Norwegian oil worker's strike and a national labor stoppage that shut down Sweden this past spring show that traditionally strikefree Scandinavian wage bargaining from past post war years of rapidly expanding economics with low inflation is under severe strain, if not obsolete. e
In Denmark and Sweden; in particular, this change, plus the problem of paying the escalating costs of their extensive states, could create serious economic and political crises before the end of this year.