Who's In and Out in Europe

Two resignation bombshells, involving EU reform and welfarestatism in Germany, should lead to new growth and jobs.

American unemployment still hovers near a low 4.4 percent. Inflation is virtually nonexistent. Growth is robust. Consumer buying is helping Asian economies revive. The US stock market is leaping ahead of the millennium - Y10K trumping Y2K.

Japan at last appears to be steering its economy away from icebergs. Its long-stagnant market is sharply up in anticipation, as banks restructure, big global firms shed workers, and more Japanese go entrepreneurial.

And Europe?

It too may have reached a turning point. It's preparing for future expansion. And its member states have taken steps to reform its central bureaucracy and perhaps its unemployment-inducing welfare statism.

First came two bombshells: (1) German Finance Minister Oskar Lafontaine's abrupt resign- ation, and (2) the forced resignation of the entire 20-member European Commission, the EU's executive branch.

A way out of the 'third way'

Both can be seen as steps in an awakening from oversatisfaction that Europe's "third way" has produced a beautifully balanced combination of capitalist growth and welfare cushions for all. It hasn't.

Earnest Mr. Lafontaine was pushing on a string in demanding lower interest rates, lower taxes on workers, and major disincentives to business.

We argued last year that Europe needed, and could afford, lower interest rates to stimulate its economy - and thus create jobs. But we also argued that the Lafontainists were going about this in the wrong way, by trying to browbeat the new European central bank at its birth. That bank needs to be independent. But once its independence is established, it can and should lower rates to promote growth.

How not to create jobs

The Lafontaine wing of the German Social Democrats was also self-defeating when it attempted to persuade the new left-center governments in Europe's core states (Germany, Britain, France, and Italy) to coordinate corporate taxes and regulations. That would have meant ending competition to woo businesses across borders. And that, in turn, would have hamstrung growth. That's a recipe for sending jobs overseas, not creating more jobs to lower the gravely worrisome 11 percent unemployment rate.

German Chancellor Gerhard Schrder, in facing down the Lafontaine wing of his party, now identifies himself more firmly with the Tony Blair centrist strategy of encouraging industry to stay and grow in order to create jobs, prosperity, and enough revenue for a reduced welfare state.

To the east, Poland's president, onetime Communist Aleksander Kwasniewski, in sharp contrast to Lafontaine, supports further capitalist growth and the earliest possible entry of Poland into the EU.

Coming hard on the heels of Polish, Czech, and Hungarian entry to NATO, that sentiment reminds us that the econo-political EU should grow to keep pace with military NATO.

Reformers show teeth

But first the EU must grow and evolve internally. Reform erupted spectacularly on the Ides of March with the fall of all 20 European Commissioners (not just the expected two or three). They resigned in a scandal of complacency about corruption and nepotism. The once toothless parliament of Europe accomplished what America's impeachment-weary Congress could not: namely, removal of its executive branch leadership.

Although some figures of unblemished record fell with the blemished, this political explosion was welcome for two reasons.

First, it showed the elected parliament's assertiveness in matters involving the wastefulness and regulatory intrusiveness of unelected bureaucrats.

Second, it created a better balance of power between legislative and executive branches, promising better checks on the faceless decisionmaking that has made citizens of the new semi-united states of Europe wary. That may also lead to better checks on runaway budget costs for subsidies past their original need.

In short, individual European states are finding a better balance between protecting needy citizens and keeping hands off growth and job-creation. And the EU's core institutions - parliament, the executive commission, and the new central bank - are groping toward a more open, efficient balance. There's still a long way to go in earning citizens' trust. But all this recent ferment is promising.