Too <i> Pluribus</i> for <i> Unum</i> : Now to Fulfill the Promise of Berlin Wall’s Fall

One really important outcome of Europe’s latest readjustment of currencies--and visions--may well be fulfillment of the promise of the Berlin Wall’s fall in 1989.

The 12-nation European Community may climb out of deep recession, thanks to the abandonment of a narrow currency agreement that was strangling its major economies, causing nearly 12% unemployment in France.

German interest rates will continue to decline also--not because of currency readjustments, but because the German economy is in recession and needs to return to growth.

A pickup in Europe will create opportunities for the U.S. economy--which sends Europe almost $120-billion worth of exports annually--and for Japan, which sends it $50-billion worth.

And it will bring opportunity for the emerging economies of Eastern Europe--Poland, the Czech Republic and Hungary--which are capable of supplying Western Europe with food and quality goods at bargain prices, if given the chance.

We could be at an important turning point, economic experts said Monday. The next few years may reverse the frustration felt here and abroad since the Cold War ended. Peace was supposed to bring prosperity; instead it has brought fear and narrowness. The EC nations put up tariff walls and other restrictions against goods from Eastern Europe, attempting to rush toward a single currency as if fearing that, without irrevocable ties, their union would break apart and they would be left defenseless in a competitive world.

The fear was overdone, the rush to a single currency was premature, and Europe will benefit from a strategic retreat.

“The European free trade area will continue to function; the events of last weekend won’t lead to disintegration,” says Mieczyslaw Karczmar, the New York-based economic adviser to the Deutsche Bank.

That free trade area has accomplished a lot in recent years. Now goods can move across European borders without the delay and expense of customs. Europeans from 12 countries travel on a single passport. Theoretically, a citizen of one country can get a job in any.

But employment has been hard to come by lately. In Europe’s case, the recession has been compounded by miscalculations.

In 1990, rich West Germany unified with poor East Germany by giving East Germans an extremely generous settlement in terms of the powerful deutschemark. East Germans, flush with unaccustomed purchasing power, went on a buying spree that drove up prices all over Germany. So Germany’s ever-watchful central bank slammed the brakes on inflation by hiking interest rates.

That forced other EC countries to hike interest rates too, because their currencies were tied to the mark. Europe’s economies slowed as a result.

But European central banks were fighting the wrong adversary. Inflation wasn’t the problem; deflation was. West Germany, in its generous settlement with the East, assigned values to buildings and businesses that turned out to be 10 times their real worth. Think of it as the German equivalent of U.S. hotels and shopping centers built by savings and loans in the 1980s. The stalled German economy has been adjusting to those lower values ever since.

Similarly, properties are listed at outdated values in France and other EC countries, says Laurence Kantor, vice president and European economist of J.P. Morgan & Co. And the French economy is stalled.

But now, with the French government freed from defending an artificial value for the franc, French interest rates can come down, values can adjust, and commerce can flow again.

The U.S. dollar may rise against European currencies, but adjustments won’t be extreme, predicts Heiko Thieme, head of Thieme Associates, a New York investment management firm. “The dollar went over 1.7 D-marks, but it will settle back to 1.6 to 1.7 D-marks to the dollar,” he says.

So, U.S. exports will find a ready market in a recovering Europe.

And so will low-priced goods from East European countries that gained independence in a great burst of optimism four years ago. The potential is there. The Czech Republic, with a national income per person comparable to Spain or Portugal today, recalls that before World War II its income was comparable to that of Austria or France.

That’s why a cross-section of investors, including major U.S. firms, have bought into companies in the former Czechoslovakia, Poland and Hungary, says Charles Harmon, a London-based director of Credit Suisse First Boston Ltd.

Lately, trade and commerce have lagged, as Western Europe has had little welcome for goods from the East. But with the currency logjam broken, two-way trade can develop. Ultimately, the EC contemplates membership for those East European states.

And it’s that expansive vision of a broad economic community that now may be renewed for Europe--although that’s hard for Europeans to see at this point.

“I still think that if Nebraska and New York can have the same currency with their different economies, so can France and Germany and Belgium,” a European economist said Monday.

“But politics comes before economics,” counters a U.S. economist, Kenneth McCarthy of Economic Intelligence Co. Nebraska and New York have the same currency because they have an agreement on political unity--an agreement that dates ultimately to 1793 and was ratified in the Civil War in 1861.

As it proceeds, Europe will learn that there’s more to unity than a piece of paper. Meanwhile, it will do better economically in the next few years.