Monday, 17 April 2006

The Struggle for 'Open Europe'

The French, it seems, have finally found a cause for which they are willing to go to war. Unfortunately, in this fight, victory equals defeat.

I’m not referring to the pathetic display of pseudo-revolutionary nostalgia staged for the last several weeks in France by thousands of student demonstrators, fellow-traveling union-activists and assorted troublemakers. They have succeeded — with this week’s decision by French leaders to scrap an exceedingly minor labor market reform package — in not only subverting the democratic process (the legislation had been passed by the parliament) but also hamstringing yet again the sluggish French economy.

They were fighting for an illusion: the idea that a job — any job, even the first one you get out of college — should be guaranteed for life. For them, too, the “victory” is decidedly Pyrrhic. In place of the job reform package, the French government has proposed yet another subsidy program aimed at employing “disadvantaged” youth. It would be a joke if it weren’t so cruel. Because in practice the scuttling of the reform legislation will “disadvantage” these youth even more. They won’t be able to get jobs. Period.

No, I’m referring instead to a kind of metastasizing economic protectionism, even isolationism, that is taking hold in France especially but also across Europe. As other writers have pointed out (here, and here), the developments across several European countries threaten to undo the gains made over the last 50 years in creating a single market.

Consider some troubling recent developments:

  • When Italian power company Enel makes a cross-border move to buy French energy giant Suez, the French government intervenes, convincing Gaz de France, of which it controls a majority share, to step in. In short, the government foils one takeover and engineers another one more suited to its political interests, which it equates with “national interests”.
  • Similarly, Spain moves to prevent the takeover of a publicly traded company, Endesa, by German utility E.ON. The government passes a law giving it the power to veto foreign takeovers of certain “strategic” industries such as utilities.
  • The attempted takeover of European steel company Arcelor by Mittal (a company incorporated in the Netherlands but run by an Asian) is greeted with horror. In France, Mittal’s CEO, Indian Lakshmi Mittal, is vilified in the press and in political circles. The French CEO of Arcelor likens his company to a pure European flower being attacked by “a bunch of Indians” with “monkey money.”
  • Poland demands that an Italian bank divest the Polish holdings of a German bank it had already acquired in a merger previously approved by EU regulators.
  • The European Commission approves a watered down new version of much-needed legislation to create a single EU market for services — under pressure from the European Parliament, which caved into protectionist fears of cheap labor from new member states (the infamous Polish plumber). The potential benefits to consumers or small businesses came second.

So it’s clear France is not the only country in an economically nationalist mood, although it may be the most vehemently so. (It should not come as a surprise — nor even be particularly newsworthy — that Jacques Chirac would storm out of the EU’s economic summit last month because a Francophone speaker was making some remarks in English instead of his native French. What’s surprising is that: 1) Chirac’s tantrum was the biggest story to come out of the summit, and 2) it did not engender controversy so much as a few giggles and exasperated sighs. In fact, the European political community now seems resigned to the fact that the grand EU project is in tatters and even some childish grandstanding doesn’t seem to faze anyone. ) Memo to Chirac: “C’est l’economie, stupide.”

The irony is that even with this merger blockage, France may find itself with a more competitive energy sector. By taking over the publicly traded Suez, Gaz de France will be, in effect, privatizing in spite of itself. Reform of the sector is much-needed, but like most market remedies has been impossible to implement because of the outsized power of the public-sector unions. Gas and electric company workers in France are — believe it or not — civil servants, with all the rights and privileges appertaining thereunto. To them, and to their allies in other trade unions and on university campuses, privatization is a four-letter word.

What’s even more galling is that, even though they don’t realize it, the French benefit greatly from foreign investment in their country, and from their foreign investments abroad. A page-one story in Le Monde recently revealed that one in nine Frenchmen who are employed by a company have foreign bosses. That, incidentally, is significantly higher than the number who are members of a labor union.

(To be fair to France for one minute, it is not alone in this kind of behavior. The outbreak of economic xenophobia in the US that greeted the attempted takeover of American port facilities by the a company controlled by the government of Dubai was nothing to be proud of.)

Much has been made of the crisis facing the European Union after last year’s referendum defeats on a proposed constitutional treaty. But these economic moves are a far worse threat to European integration — the good kind of integration, the kind that boosts competition, increases growth and creates jobs — than any constitutional debate. To its credit, the European Commission is trying to crack down on this wave of economic nationalism. It is investigating the French, Spanish and Polish cases and could eventually intervene to make sure that single-market principles are upheld. (It essentially caved in on the services directive — having been given no choice by the European Parliament and by EU member states.) EU Trade Commissioner Peter Mandelson described the situation this week as a “struggle for Europe’s soul” between those who want an “open Europe” and “the forces of protectionism, populism and, at times, even xenophobia”.

Hear, hear. The battle lines have been drawn for some time. But from the boardrooms to the ballot box to the barricades, the enemy is winning.

By Craig Winneker
The author is Europe editor, (