How oil price drop would restore Europe's economy

Strong currents have been buffeting the financial, economic, and political scene in recent weeks. For Western Europe, the repercussions over the short and medium term could be dramatic.

The prices of oil and gold have fallen sharply. The right and center-right have scored major election gains in West Germany and France. The British pound has dropped to a four-year low. Unemployment has hit postwar highs. Interest rates and inflation have plummeted.

Causing much turbulence has been the steep fall in oil prices. Oil prices had quadrupled in 1973-74 and tripled again in 1979-81, hitting the Western world's energy-hungry industry where it hurt the most.

Today, despite the long recession and some surprising successes in energy conservation, the 10 member-countries of the European Community still depend on the Organization of Petroleum Exporting Countries (OPEC) for two-thirds of their oil imports. In comparison, only half of the oil the United States imports comes from OPEC.

What this means is that any drop in OPEC oil prices will have important and lasting consequences for Western Europe - to a far greater extent, in fact, than for any other part of the industrialized world except Japan.

''Simply put,'' says Roland Leuschel, an economist at the bank Brussels Lambert, ''a cut to $25 a barrel would be marvelous for Western Europe.''

For their part, energy experts at the EC here say that every cut of 20 percent in the price of oil adds more than 1 percent to the purchasing power of every West European citizen while chopping the rate of inflation by at least the same amount.

What's more, according to analysts, national budget deficits - astronomical in many West European countries - can be slimmed by simply sitting back and watching the price of oil skid.

In Belgium, for example, where government spending has been outstripping income by some 150 billion francs ($3.2 billion) a year, economists estimate that a drop of 10 percent in oil prices will save 25 billion francs (about $530 million) a year in lower oil-import il12l,0,16l,5pcosts. A weaker US dollar - which is widely expected this year - will mean even greater savings, since it is the currency in which oil-import bills are paid.

But all will not be rosy in the land of cheaper oil.

Working against the oil-price cut in Western Europe will be what most analysts see as the certain devaluations of several currencies, notably the French and Belgian francs, following the sweeping election victory of Chancellor Helmut Kohl's center-right Christian Democratic Party in West Germany on Sunday. The win has restored confidence to the country's industry after months of uncertainty over a possible socialist success. It has also strengthened the deutsche mark and renewed pressure on other currencies in the European Monetary System.

Several devaluations could come before the end of March, dealers say, meaning higher costs for imported goods and offsetting to some extent the fall in oil prices.

Also causing some concern, especially among consumer organizations, is the increasing likelihood that several, if not all, West European governments will decide to impose some sort of tax on energy in order to counter the fall in oil prices. This would raise much-needed revenue but keep prices at the pump at a lofty level.

The Belgian government, for example, has discussed the tax prospect in the past week. And at the EC, some experts have started to push the idea in anticipation of a meeting of EC energy ministers later this spring. The Economist pointed out in a recent editorial that half of the fall in the West's nearly 20 percent drop in demand for oil since 1979-80 has come in response to higher prices. The editorial noted that an energy tax would discourage oil consumption, ''even as its cost to the West dropped, and OPEC would be denied the means to mount another 1979.''

For British industry, if not British oil companies - which, collectively, are the fifth largest oil producer - the fall in the value of the pound sterling against the world's major currencies will be a windfall. ''British exporters will be back in business,'' said an expert.

The Financial Times said in an editorial last Saturday that British industry is likely to have ''its best year'' for some time, ''provided that sterling does not stage some strong and untoward recovery.''