France, The Netherlands and Denmark have been forced to impose price freezes on nearly every variety of goods and services sold within their borders. All three countries, along with West Germany, Italy, Belgium and Sweden, have recently raised bank interest rates (some of them several times) in an effort to restrain borrowing. Almost everywhere in Europe, factories are humming at or near their capacity, but consumers are spending money so fast that some firms cannot fully meet the demand for their products. French automakers, for example, are making many domestic buyers wait for delivery of new cars because they are giving priority to export orders.
These are the symptoms of the Continent's new outbreak of inflation. Prices in every major European country except Britain, and in most of the smaller ones, are climbing more rapidly than in 1968; in most countries the rise also exceeds the 1958-68 annual average. In its most recent assessment of the economic outlook, the Common Market commission called for "urgent" steps to bring the "unmistakable boom" under control.
Enforcing the Freeze. France confronts by far the most serious problem. Price increases have been accelerating ever since the costly wage settlements that ended the May-June general strike of 1968. Before the Aug. 8 devaluation of the franc, price increases reached an annual rate of 6.5% v. a July rate of 6% in the U.S. Devaluation will add at least another percentage point to the inflation rate this year by automatically increasing the price of imports.
The price freeze until Sept. 15 that the Pompidou government decreed (TIME, Aug. 22) is proving, as expected, difficult to enforce. The government has only 2,100 inspectors to watch for illegal price increases, which Frenchmen sardonically call la valse des etiquettes (the price-tag waltz). The inspectors must police hundreds of thousands of retail establishments; the number of shoe stores alone is over seven times the total number of inspectors. Of the first 618 stores checked by inspectors in the Paris area, some 150 had raised their prices illegally by 20% to 100%.
In Germany, Europe's strongest economic upsurge has now reached a point at which eight job openings await each temporarily unemployed worker, even though a record 1.4 million foreign workers now labor on production lines. Prices are rising at a 3%-a-year rate. That might seem small to Americans but it is worrisome in a country where memories of the calamitous inflation of the '20s are as bitter as memories of the Depression in the U.S. The rate is likely to rise toward the end of the year, particularly if the general wage increase due in the fall reaches the expected 8%.
Labor Pressures. Prices in Italy are on the rise again after two years of stability. Lately, the annual rate of increase has climbed to 3%, and the potential for further escalation is great. Labor contract clauses that raise wages to reflect the cost of living are being invoked once more, and 3,000,000 workers in the steel, auto and engineering industries will be seeking further large boosts this fall.
In The Netherlands, introduction of the value-added tax, a complex form of sales tax that is being adopted throughout the Common Market, helped to push the annual rate of inflation to a startling 6% to 7% before the government instituted its price freeze.