EU’s single market faces its most serious threat

THESE are troubling times for the European Union’s top policymakers. Competition from China and India is on the rise, jobs remain in short supply and outrage in many Muslim countries over the publication of anti-Islam has strained Europe’s once warm relations with the Islamic world.

But for officials at the EU’s headquarters in Brussels, the focus in on another priority: halting the wave of economic protectionism sweeping across many countries in the 25-nation bloc.

Few can deny that Europe’s single market is under its most serious threat since 1992 when governments boldly moved to abolish national frontiers, allowing the free movement of people, goods and services across the bloc.

Concerns about a resurgence of economic nationalism centre on Italian claims that the French government engineered a merger between state-controlled Gaz de France (GDF) and utilities group Suez to thwart a rival bid for the latter from Italian energy group Enel.

Other recent deals have also triggered concern in Brussels.

Madrid is currently studying ways to keep German energy giant E.ON from buying Spanish group Endesa. France, Luxembourg and Spain are exploring ways of keeping Mittal Steel from acquiring rival Arcelor, a deal they deeply oppose. And EU policymakers are also entangled in an acrimonious struggle with Warsaw over Polish government moves to block the merger of Pekao and BPH, two local affiliates of the Italian banking group UniCredit.

Ringing the anti-protection alarm bells loudest is ardent free-marketer Jose Manuel Barroso, whose job as head of the commission - the EU’s executive arm - puts him at the centre of the economic storm raging across the bloc.

Mr Barroso has warned repeatedly that government meddling in corporate takeover battles is not just threatening the EU’s single market but also jeopardising Europe’s ability to compete on the global stage.

“This is not the time for economic nationalism... in a globalised world, no member state can go it alone,” the commission chief warned recently.

“Defending national champions in the short-term usually ends up relegating them to the second division in the long-term,” Mr Barroso cautioned, adding: “More efficient companies that have been subjected to the full rigour of competition leave national champions behind as they move into international markets.”

Mr Barroso appears to have found an ally in German Chancellor Angela Merkel. British Prime Minister Tony Blair is also urging EU governments to stop sheltering behind protectionism and face the winds of free trade.

The bloc’s anti-trust regulators, led by competition chief Neelie Kroes, say they are determined to vet each energy merger and acquisition and will take legal action against governments and companies accused of breaching single market rules.

The fear in Brussels is that the economic nationalist hysteria will damage the bloc’s fragile economic recovery and endanger the EU’s global reputation as a defender of free markets.

It’s not just about the economy or global standing, however. The debate has also triggered a damaging political rift among governments.

While French politicians often rage against the commission’s ‘ultra liberal’ policies, free-market Nordic nations and many central and eastern European states - excluding Poland - say the EU executive must take a tougher stance against nationalist rhetoric and policies.

ENLARGEMENT: Other questions are also dividing the union. Although the issue of further EU enlargement - this time into the Balkans - has been put on a backburner until a summit in June, leaders are expected to spar over just how fast and how far the bloc should expand.

A meeting of EU foreign ministers in Salzburg earlier this month spotlighted sharp differences between the new member states from central Europe, which mainly back fast-track enlargement, and old EU states such as France which have lost enthusiasm for expansion.

Raising a new barrier to enlargement, EU foreign ministers agreed that the ‘absorption capacity’ of present members would in future be a key criterion for expansion.

This issue has aggravated a widening east-west split in the EU, with new eastern members already angry over restrictions which bar workers from their countries from entering most western European labour markets.

Also casting a shadow over proceedings will be the EU constitution, which was rejected by voters in France and the Netherlands last year.

Some states - including France and Germany - want to revive at least parts of the treaty, but others such as the Netherlands and Poland are fiercely opposed.

In an organisation with 25 governments, espousing very different ideologies, finding common ground on most issues is always difficult. With the current mood in Europe growing more acrimonious, however, the struggle to achieve consensus has become almost impossible.