8:36 AM Jan 12, 1996

HALF FULL BECOMING QUARTER FULL?

Geneva 12 Dec (Chakravarthi Raghavan) -- Just about four months ago, the UN Conference on Trade and Development came out with its annual Trade and Development Report, projecting a world economy losing steam, and advocating stimulative actions to deal with growing cyclical and structural unemployment, warning that without sustained and increased growth, no dent could be made in unemployment rates and without it protectionism would become irresistible.

The UNCTAD secretariat, at the Trade and Development Board, was virtually wrapped on its knuckles. The International Monetary Fund, the European Union, and Mexico were among those who decried UNCTAD's "pessimism", and using this to question and decry its measures to stimulate growth and increase employment.

The IMF saw it in terms of a "glass half full and half empty phenomenon", viewed the underlying trends in the world economy as "encouraging", and voiced itself against the recommendations for demand expansion, employment subsidies and capital levy (to end the domestic debt burdens and the bond-market driven domestic fiscal and monetary policies). The EU pronounced itself as having a "more optimistic" view of the world economy than UNCTAD and that structural rigidities, not restrictive monetary policies, as responsible for slow growth; and that increased public spending would only lead to higher taxes or higher interest rates, with both discouraging investment and destroying jobs. Before the end of the year, not only have all of them revised downwards their own earlier projections, but some mainstream financial writers and columnists are talking of a feeling now of "more pessimism" among leaders of Europe's Big-four (France, Germany, Italy and the UK).

In September, UNCTAD had projected for the OECD as a whole for 1995, a GDP growth of 2.5% as against the (then) projections by the OECD secretariat of 3%, the EU's projection of 3.1%, and the IMF's projection of 3.2%.

Given the nature of the projection game, any projection could turn go either way, depending on when it was made (the information available at that time and known factors and assumptions).

The OECD secretariat itself in an earlier report, had noted the consistent pattern of over-estimations, and gave as an explanation inability to correctly predict consumer behaviours.

But the OECD at year end projected for 1995 as a whole a growth of 2.4%. Japan's growth was reduced from a 2.5% to just one percent and that of Germany from 2.8% to two percent for the year as a whole.

The latest official figures, and of projections of research institutes, is no growth in Germany in the last quarter of 1995, and possible similar pattern in first quarter of 1996, and overall German growth in 1995 of 1.9% (less than the OECD projections of December).

The growth projections now for UK, France, Italy and Japan are all downwards (with the French also able to blame it on the strikes). Only the US did better than expected (though what would happen in the context of the prolonged budget battle between White House and the Congress remains to be seen).

Early in December, the UN's Economic Commission for Europe (ECE) in is year-end bulletin, revised downwards its own mid-year projection of 3% to project a 1996 growth in Europe of around 2.5% and a socially disturbing outlook of increasing unemployment.

The ECE blamed the slowdown on the fiscal tightening efforts of EU governments -- to achieve the Maastricht Treaty criteria for fiscal targets for an European Monetary Union (EMU) -- which had got underway even before the maturing of the cyclical recovery.

The ECE suggested that the target dates for achieving convergence of fiscal consolidation for the Maastricht treaty criteria should be stretched out, without abandoning the targets, but merely adjusting the speed and timing of the adjustment process.

The ECE itself had said nothing more than what the Italian Prime Minister and the British Finance Minister had said about then, but evoked some furious reactions from Brussels. The EC Commission reacted angrily, with the EC Commission President Santer reported as suggesting that the EC Commission (which finances some ECE projects) should withdraw cooperation with the ECE, a modern version perhaps of an ancient practice of European royalty: beheading the messenger bringing bad news.

The EC Commissioner responsible for monetary and financial issues in the EU, Yves Thibault de Silguy (a French technocrat who went to Brussels), went further and, in a published interview in a Geneva journal, professed himself to be unaware of the ECE view, choosing to describe that body in some derogatory terms -- using the French words 'les officines'. Literally it would mean some small pharmacy shop, but in the context used it would in English be something like 'a den of shoddy business' or a 'thieves kitchen'.

Now, everyone in the EU, including the mighty Germans, are saying that even Germany can't meet the Maastricht fiscal consolidation criteria.

The Financial Times (which represents London's financial and business interests), in an editorial of 12 January, wrote of the EMU coming to stand for European Masochists' Union, cautioning against EU governments further discretionary tightening of fiscal policy to hit the Maastricht targets and chasing each other down a vicious spiral of decline, and advocating monetary easing or alternative making fiscal judgements (about consolidation and targets) in the light of cyclical positions.