The Global Crisis: Europe - Shortage of skills: Euro launch keeps optimists smiling

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The Independent Online
ANNE-MARIE PICARD pointed out of the window towards a building site and a crane. "I love cranes. Not long ago, you would never see a crane in Valenciennes. Now you see them everywhere. People don't build unless they believe in the future."

Ms Picard, 49, runs a small factory making rubber and plastic seals and joints for industry. It is the kind of business that is ultra-sensitive to recession. If the economy is weak, her customers in France, Belgium and Luxembourg hang on to their worn joints and seals until the last possible moment. Then they ring her in a panic when their machinery breaks down.

"Now, everything is calm and orderly. Business is pretty good [11 per cent up in two years]. Just before Christmas, it was quiet and I thought, ah, here comes the slowdown. Then, in the last few days the phones have been humming."

In another part of the same industrial estate - Valenciennes Zone Industrielle Numero Deux, beside the Paris-to-Brussels autoroute - Eric Catteau, 42, has a warehouse full of severed legs, fangs, green hair, Indian costumes, fireworks, false breasts and rubber bottoms. He and his brother have a thriving wholesale business selling accessories for festivals, marriages and parties.

Business is booming, he says, partly because shops are already stocking for the anticipated mass frolicking at the end of the year. But that is not the only reason.

"Since January, and the coming of the euro, we've had more inquiries from other European countries than I've ever had before. I'm in conversation with competitors in Italy, Luxembourg and Belgium about how we can work together to take advantage of having a single currency by placing larger, joint orders abroad. Until now, 2 per cent of my business has been outside France. I hope to expand that to 20 or 30 per cent in the next few years."

Valenciennes, east of Lille, is as good a place as any other to test the economic temperature of euroland, as the chill of recession shivers around the globe. The town, built on coal and steel, was devastated by the rust-belt slump of the Seventies and Eighties. It still has unemployment of just under 20 per cent, among the worst in euroland. But Valenciennes has been fighting back strongly.

Thirteen months ago, the town won a big new Toyota factory (2,000 jobs), which Britain had hoped to take. Led by one of the most enterprising chambers of commerce in France, Valenciennes had scoured the world for new business to replace the old staples (coal has gone altogether; steel just survives).The town is becoming ahub for the motor industry and hi-tech, service and trucking industries. This "new" Valenciennes is deeply embedded in a European economy and, to some extent, a world economy.

Can the European recovery survive while the rest of the world is slowing down? Is the coming of the euro just the boost that the European economy needed? Or an irrelevance? Or even a trap?

The strong recovery in continental Europe, led by France and then Germany in the past 18 to 24 months, has been based mostly on a boom in consumer spending and domestic investment. Inflation in France and Germany has virtually ceased to exist; interest rates are at record lows right across the euro zone. Industrial investment in Germany leapt by 8.6 per cent last year; less in France.

And yet, and yet ... In another part of Zone Industrielle 2, Bertrand Gilliard, head of the Nord Fret transport company, is less optimistic about the future. "Last year was a fantastic year for us. Fantastic," he said. "But just before Christmas, I did a tour of my customers, mostly manufacturing companies, and they all gave me the same message. Prospects are not as good this year because the recession in Asia and Russia is beginning to be felt by companies here."

Can the euro help to blunt the effects of the Asian recession? "I can sum up the impact of the euro so far in one word," Mr Gilliard said. "Nothing."

In the longer run, he believes that the euro will be a huge advantage. How could it be otherwise for a French freight company, 20 miles from Belgium and three hours' drive from four other EU countries? "But you will not feel the real effects until 2002," he said. "Until then, most people are adopting the wisdom of the ostrich. We have hundreds of customers and of those just one has asked us to invoice in euros."

The mood in Valenciennes matches that in France, Germany and euroland as a whole: some, such as Mr Gilliard, are cautious-to-gloomy; others - the majority - are confident that recession can be kept at bay and that the phantom euro is already helping.

"We have had no falling off in approaches from all over the world," said Jacques Lesnes, director-general of the town's chamber of commerce and industry. "One of our missions has just returned from looking for possible new investments from Latin America and, despite the problems in Brazil, they say the level of interest is as high as ever." The combination of the launch of the euro and the problems elsewhere could bring new capital into euroland, he believes.

The latest figures suggest that the continental EU economy is holding out - but only just. Germany had its highest level of growth last year - 2.8 per cent - since its reunification. But the rate of growth fell away sharply in the last quarter and is expected to slow to about 1 per cent this year. Unemployment is only just beginning to creep down.

Private estimates of French growth - 3 per cent in 1998, the highest for nine years - have been revised downwards this year, to below 2.5 per cent. The figure is important because this is the point below which the slow erosion in the French jobless rate - now 11.6 per cent - could be reversed.

Employer after employer in Valenciennes complained that despite the high unemployment locally, they found it difficult to hire skilled labour. They also complained that the weight of social charges and regulations discouraged them from hiring staff. Nothing in the coming of the single currency will change this. Compared with the United States, and even the United Kingdom, continental Europe still finds it hard to transform growth into employment. No amount of the tax harmonisation so desired by Oskar Lafontaine, the German Finance Minister, will change this bias against jobs.

The single currency, by helping to bring minimal inflation and low interest rates, has already played a part in the strong economic performance of the eurolanders. But there is no sign that the new European Central Bank (ECB) will try to boost growth, despite political pressure. Wim Duisenberg, head of the ECB, said yesterday that there was no need. "The main thing lower interest rates will do is fuel expectations that inflation will be on the rise, and that's what we want to avoid at all costs," he said.

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