The study examines the roots and manifestations of the structural problems of the four largest Western European countries, giving particular emphasis to labor market rigidities, excessive growth of government expenditures, industrial policies that targeted a few large firms, and insufficient attention to creating a climate favorable to small enterprise. For the next few years, the most likely prospect is guardedly optimistic. On the whole, there will be a continuing close relationship between the U.S. and Western Europe, marred by tensions and recurring disputes, as Western Europe remains torn between the search for a ‘European Solution’ and the need to cooperate with the U.S. and Japan. Co-published with the Hudson Institute.