EU states in hard bargaining over economic destiny
By Shadaba Islam
The European Union’s uphill battle to win agreement on a new constitutional treaty by mid-October is not the only issue exercising the bloc’s top policymakers. In parallel to endless in-fighting over the details of the treaty, the 27 EU governments are engaged in fierce battle over the future economic direction of the bloc. And while it looks likely that the EU institutional crisis will be resolved – at least temporarily – in the next few months, the battle for Europe’s economic destiny will be a long-running one.
The EU debate over the new constitution may be grabbing the headlines at the moment but Asian governments and business should start paying attention to the angry inter-EU jostling over trade and economics.
Reasons for the upsurge in EU protectionist sentiment are not hard to find. The current near-death state of the World Trade Organization’s Doha Round of trade talks has given added ammunition to Europeans seeking to shelter their industries and agriculture from foreign competition. Rising protectionist fervour in the US almost always finds an echo – albeit sometimes belatedly – in Europe. And while the anti-globalization doomsayers get all the limelight, those lobbying for a more open, liberal Europe receive little attention from the public or from governments.
Asians should in particular scrutinise recent statements by French President Nicolas Sarkozy and German Chancellor Angela Merkel which call for a more aggressive EU stance against foreign governments whose policies undermine the competitive position of European business.
Sarkozy and Merkel want the EU to develop a joint “foreign economic policy”. They say such a stance will improve EU competitiveness vis a vis states which use non-tariff barriers and restrictions to curb EU exports and investments while at the same time utilising their public/sovereign funds to invest in sensitive national European industries.
The focus – for the moment – is clearly on protecting European industries from unwanted takeovers by state-controlled investment funds from China, the Middle East and Russia. But if Sarkozy and Merkel get their way, all foreign countries deemed to be obstructing European exports or taking up too large a stake in the European economy, could be open to EU retaliation. “This is about reciprocity,” Merkel pointed out after talks with Sarkozy last week. “We are for open markets but they should be open everywhere.”
When France and Germany sing the same tune, the EU listens – and acts.
As such, German proposals to restrict investments by sovereign wealth funds will be scrutinized by the European Commission later this month. One option on the table according to Neelie Kroes, the European Union’s Competition Commissioner, is the establishment of a committee to monitor potential investments in sensitive European industries, a follow-up to calls by Germany’s economics minister Michael Glos that foreign companies wanting to buy more than 25 per cent of any large German firm should be required to seek government approval.
Sarkozy is looking for more, however. A report commissioned by the French President and issued in Paris recently by Hubert Védrine, a former Socialist foreign minister, urges France to fight globalisation by introducing tougher regulation of hedge funds, protecting strategic industries and creating European industrial champions . Vedrine also calls on the EU to be far more robust in applying the principle of equal access in trade deals and to stand ready to protect its industry from hostile takeovers, particularly where there was not equal access. The EU should consider more widespread use of golden shares to block hostile takeovers or otherwise simply choose to designate certain industries as of “strategic” importance, said Vedrine.
If Europe was not more hard-headed about protecting itself, there was a risk that its well-meaning liberal leaders would eventually be seen as the “idiots of the global village”, he added. The report by Vedrine comes only weeks after Sarkozy successfully lobbied EU leaders in July for the removal of the words “free and undistorted competition” from a list of the bloc’s core objectives for the coming years.
Efforts by Paris and Berlin to pull up the drawbridge to Fortress Europe run counter to the European Commission’s efforts to ease European fears over globalisation, industrial delocalisation – including the movement of western European firms to eastern Europe — and above all to combat growing EU concerns over the economic might of China and India.
Opposing France and Germany are several senior EU officials, including
Kroes, EU internal market chief Charlie McCreevy, energy commissioner Andris Piebalgs and trade chief Peter Mandelson. “Protectionism is not the answer,” Kroes said when she delivered an address to government officials and business leaders in Paris at the end of June.
“Protectionism almost inevitably leads to a downward spiral of retaliation. In the long run, we are all worse off.”
A similar warning was issued recently by Meglena Kuneva, EU commissioner for consumer protection, who urged EU states against the use of consumer safety as a disguise for protectionist action against China. “There is a very thin line between protection and protectionism. There are old world protectionists who would like to hide behind the skirts of consumer safety…Europe has made the choice for an open society and an open economy. This has brought and continues to bring tremendous benefits to European consumers, taxpayers, workers and enterprises,” she added.
Mandelson has also cautioned that Europeans still have not really worked out how to be political about globalisation — except, in most cases, by opposing it. “If producing cheaply in China helps generate profits and jobs in Europe, how should we treat these companies when disputes over unfair trading arise?” Mandelson asked, adding: “How do we define what is a European company in a world of global supply chains and multi-national assembly lines?”

