E.C.E. Warns against reliance on tight monetarist policies

Press, 28 March 1981, Page 21

E.C.E. Warns against reliance on tight monetarist policies

NZPA Geneva The United Nations Economic Commission for Europe (E.C.E.) has warned Governments that . reliance on tight monetary controls to tame inflation, without an incomes policy, might lead to a heightening of social conflict. In an economic survey, the E.C.E. said the 1980-1981 period was seeing near-stag-nation in Western Europe and North America, with industrial production five per cent lower in the last quarter of 1980 than in the first three months and no signs of recovery before mid-1981. The last year had been particularly unfavourable for Southern Europe, with output growth close to zero in Greece, Spain, and Turkey, the report said.

Fixed investments were expected to bear the brunt of the ’ recession this year, whereas household consumption had shown the main decline in 1980.

The report suggested that the monetarist strategies adopted by several governments that have turned away from incomes policies might increase social - strains caused by higher unemployment, and said the effective-

ness of such an approach had yet to be proved. The widely-accepted view was that restrictive monetarist policies over a long "cool-ing-off” period would reverse inflationary factors once and for all and enable balanced growth. i “This strategy has yet to be proved, as inflation is still running at historically high levels, and growth is virtually zero in many countries,’’the E.C.E. said.

The survey added: ‘'One consequence of the present monetarist strategy has been a widespread escalation of interest rates, which have now reached very high levels, particularly in the United States.

“The levels prevailing there have exerted a depressive effect not only on the U.S. economy but also on Western Europe, where governments have been forced to adopt policies that are more stringent than might have been justified by their domestic situation alone.”

This was particularly so in West Germany, where fiscal policy had been subordinated to monetary policy, and efforts were being made to reduce government borrowing to ease upward pressure on interest rates, it said.

“Another consequence of the predominance given to. the control of money as the central instrument for curbing inflation is the relaxation of efforts in incomes policy, particular!}' for the taxoriented incomes policy. | "Incomes policies are obviously more difficult to run under present conditions of stable or declining real incomes. But their virtual abandonment by many governments may well imply a still tighter monetary policy and an exacerbation of social conflict.”

The commission reported a disturbing increase of 1.7 million in the number of unemployed in the year ending last November, with about 7.5 per cent of the total labour force out of work in the winter just ended.

In contrast to previous years, unemployment grew faster for men than for women, reflecting a rapidly deteriorating situation, it said. .