How They Live So Well in Europe

"Black work" and a thrift ethic help them handle those prices

It used to be that Americans returned from a vacation across the Atlantic full of tales of shopping bargains and cheap travel. No longer. Today, most return with their wallets empty, their credit cards fully charged and their spirits shaken by how little the dollar now buys. Many wonder just how Europeans can afford to live at all in Western Europe, let alone so well.

Prices are indeed high. In the shopping meccas of Paris' Rue du Faubourg-Saint-Honore, Munich's Maximilianstrasse or Brussels' Avenue Louise, a Pierre Cardin tie costs $40, a Rety suit $440 and a Balenciaga handbag $370. Even the cost of window-shopping is steep. Hotel rooms in a smart area of a capital city can easily cost $75 a night, a good dinner for two starts at $60 or more, and a week's car rental often tops $300. Local residents, of course, avoid the stores and services that tourists frequent. Even so, their everyday costs are hefty. A modest two-bedroom house in a suburb rents for $1,600 a month; a gallon of gas costs $2.30 or more, a pair of Levi's about $40, cigarettes $1.10 to $2.70, newspapers at least 40-c- and a pound of steak up to $11.

But while surveys show that compared with America, living costs are up to 73% higher in Switzerland and about 40% higher in West Germany and France, it is also true that European salaries are occasionally richer. A recent study by a U.S. management consulting firm, Towers, Perrin, Forster & Crosby, calculates that the chief executive of a typical medium-size company in Germany earns 50% more than his U.S. counterpart, 40% more in Belgium and The Netherlands, and 20% more in France. Business International, a Geneva research firm, notes that in Switzerland today, a receptionist now gets $19,700 a year, an executive secretary $27,000 and a salesman $37,000.

Though part of the rise in European pay (and prices) when expressed in dollars reflects the slump in the value of the greenback, this does not explain all the difference. In real terms, incomes have simply risen much faster in Europe than in America. According to the Paris-based Organization for Economic Cooperation and Development (O.E.C.D.), between 1972 and 1977 the annual increase in the average hourly wage in the U.S. was less than 1% above the inflation rate. But in Europe, wages have stayed ahead of prices by much greater margins: more than 5% in France, Belgium, Norway and Italy, and over 3% in Germany.

Part of Europeans' gains have been wiped out by their higher taxes; a typical Belgian family earning $56,000 will keep no more than $32,000. But though their taxes are generally lower, Americans must shell out more of their incomes for medical and educational expenses, both of which are largely free in Europe. The net result is that many Europeans end up with somewhat fatter disposable incomes than Americans but they also face generally much higher prices. So how do they do it? How do they afford the rows of doubled-parked Mercedes and BMWs and the expensive smart clothes that are so conspicuous to visitors?

One of the main reasons for the Europeans' apparent affluence is the fact that reported wages and salaries account for only part of many incomes. Moonlighting on weekends and evenings at second jobs--known as "black work," or the parallel economy--is common. Some economists reckon that average per capita incomes in most European countries, including France and Germany, should be increased 5% or more to account for hidden, tax-free earnings. The parallel economy is based on barter and cash transactions. A dentist will fix the teeth of a decorator in exchange for getting his house painted; a craftsman or professional will, on request, quote two prices for the same job: a high one if payment is by check, and a much lower one for cash.

Wealth is also increased by inheritance. Many European middle-class families can point to fine antiques, paintings and country houses that have been passed down. What these items all have in common is that they are difficult to evaluate and tax. In Switzerland, for example, the tax collector can estimate the wealth of a deceased individual only by one visit to his home right after his death; before the taxman arrives, the Picassos and Renoirs are commonly taken down and replaced by cheap reproductions.

But despite the extra income and benefits of "black work"and inheritances, Europeans do not live better than Americans--at least not by U.S. standards. An O.E.C.D. study notes that France, West Germany and Switzerland all have only about 300 cars per 1,000 inhabitants, vs. 505 in the U.S. In TV sets, Americans have 571 per 1,000 people vs. 306 for West Germany and 320 for Britain. In telephones, the U.S. ratio of 721 per 1,000 citizens is approached only by Switzerland (634) and Sweden (689). Still, such comparisons can be misleading; Europeans follow different, rather than poorer, lifestyles, scrimping in many areas to be able to splurge in others. Some examples:

>Catherine Dreyfus, 40, a secretary for a U.S.-owned firm in Geneva, earns $27,000 a year but saves little. "I spend everything I earn," she says. "If I run out of money I just wait. I hate debt." She did, however, borrow to buy a new color TV and a secondhand 1973 Lancia sports car. Almost daily, she uses it to drive a short distance to her parents' house for a free lunch, in order to save money on food.

>Claude Saulnier, 34, and his wife Solange, 29, have been saving for five years to buy a house. Meanwhile, they rent a cramped apartment from parents in a modest area of Paris. Both work--he in a warehouse and she in a day care center--and earn just under $2,000 a month. They eat out rarely and have no car. Says Solange: "Where would we park it?"

>Xavier and Veronique Goupy, both 33, earn a combined $53,000 a year; he as a comptroller for a large Paris-based French multinational corporation and she as an economist for a U.S. think tank. She also gets $9,000 annually from an inheritance, but they show few signs of opulence. They live in a two-bedroom walkup, drive a small car and holiday with parents. Lacking the kind of expense account that allows many Frenchmen the Gallic equivalent of a three-martini lunch, they do not make a habit of eating out. Says Xavier: "I would guess that 60% of the customers in Paris restaurants are not paying from their own pockets."

>Wolfgang Baumann, 29, and his wife Renate, 26, a clerk and a secretary who live in a pleasant, suburban Bonn apartment, earn a combined gross salary of $2,500 a month. Taxes take nearly $1,000 of that, and they manage to save only about $100 a month. But they have a six-year-old BMW, holiday abroad every year and are preparing to move to another apartment. When they do, the moving and redecorating will be done cheaply by "friends" from the black labor market. Says Wolfgang: "We have no complaints. Life has been very comfortable."

The European thrift mentality may not be immediately apparent to tourists, but it is strong. Do-it-yourself repairing is popular, meatless days are common, fast foods are rare, and big ticket appliances like washers, dryers and dishwashers are not considered necessities. Shopping is done carefully, with the emphasis on price and quality. Cars may be expensive, but they will be owned for nearly a decade and revitalized with new engines rather than traded in after three years. Executives may buy an expensive tailor-made suit, but it will be made to last seven or more years. Foreign holidays may be frequent but, more often than not, they will merely be to inexpensive pensions, to campsites or to the homes of friends across a nearby border.

This conservation ethic extends to basic attitudes and the smallest things. An average French family saves 18% of its income and West Germans put aside 12%, vs. just 5% in the U.S., which has the lowest savings rate of all industrial countries. Houses are only rarely heated from attic to basement. Apartment-house hall lights are connected to timers and only stay on a minute or so while someone passes through. Eating out is a luxury reserved for special occasions. In the end, judgments about the relative wealth of Europeans and Americans turn on one's definition of prosperity. "I have less than if I worked in America," concedes Hans-Heinrich Bittmann, a Duesseldorf advertising executive. "But," he argues, "I live better. More modestly, perhaps, but with less stress and more time for my family and myself."

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