Economic gloom set to colour EC talks

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DENMARK has less than a week to pull a rabbit from a hat and dress it up as a symbol of Europe reborn.

The Prime Minister, Poul Rasmussen, yesterday sent EC colleagues the traditional pre-summit letter outlining the aims of the Copenhagen meeting next Monday and Tuesday. Economic renaissance, specifically 'how in the medium term we can tackle the underlying structural weakness in our economies' is the central theme, with foreign policy issues scheduled for comparatively brief debate.

But despite a plethora of initiatives designed to boost growth and create jobs, figures released yesterday showed how deeply the EC is mired in recession. It is increasingly questioned whether the conditions for monetary union in 1997 can be met. Economic stagnation coupled with the problems of ratifying the Maastricht treaty have soured enthusiasm for closer integration.

All the main economies, France, Germany and Italy, have slowed dramatically this year and, for the first time in 18 years, the Community economy will shrink. Spending grossly exceeds revenues in all EC countries but Luxembourg. Spain, according to yesterday's forecast, will next year post the EC's highest unemployment rate - a record 23 per cent.

Governments everywhere are running out of options. While the EC Economics Commissioner, Henning Christophersen, urges closer co-operation, things are not moving his way. Anger over Britain's departure from the European exchange rate mechanism has subsided and Germany's reluctance to lower interest rates is now accepted.

But this week, Germany negotiated with the United States exemption from a tit-for-tat sanctions package agreed by the Twelve. France, looking for ammunition in the forthcoming Gatt talks, has already made much of the fact that the engine of Europe has taken a different track on trade policy: one clear area where the Twelve are supposed to act as one.

In Luxembourg yesterday, the European Court of Justice upheld a French challenge to Commission attempts to get EC governments to provide regular reports of financial relationships with big state companies. Commission efforts to enhance Community competitiveness by a better control of state aid is likely to be weakened.

Meanwhile, economic comparisons with the US in particular suggest the European labour market is structurally flawed. Growth does not stimulate job creation as rapidly and, most worryingly, Europe seems unable to integrate the long-term unemployed, young people, part-time workers and women as effectively into the workforce.