Wednesday, March 1, 2006

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The European Commission's tough test

The European Commission has lost a lot of big battles over the past few years -- the growth and stability pact and the constitutional referendum, to name two. One could easily debate the virtues of either proposal, but the key political science fact is that the Commission was unable to get its way.

Tobias Buck reports in the Financial Times that the next big test is coming -- preventing a beggar-thy-neighbor policy on mergers and acquisitions:

Just over four months ago, Charlie McCreevy raised eyebrows when he warned of a “strong wind of protectionism” blowing through the European Union.

Today, that wind has turned into a storm that is threatening to tear apart some of the principles on which the Union is founded.

Within the past few weeks, the EU internal market commissioner has seen governments in Madrid, Paris, Warsaw and Luxembourg hardening their opposition to foreign takeovers.

Stung by France’s move to fend off a possible bid from Italy’s biggest energy group, the government in Rome this week also ratcheted up its protectionist rhetoric.

More trouble could be in store. On Tuesday the Commission began examining French justification for its decision to protect 11 sectors from foreign takovers.

Even though Commission officials stress that some countries may be violating the spirit rather than the letter of the law, the hostility to foreign takeovers is raising serious doubts over whether the 25 EU members are committed to the idea of a borderless, open and competitive market.

Mr McCreevy said on Tuesday: “Some...hanker after protectionist barriers not only on the Union’s external borders but internally as well. Such an attitude strikes at the very heart of the freedoms enshrined in the treaties and I will never accept it.”

The architects of the internal market have watched recent developments with growing dismay. While protectionism has never really been defeated, attacks on the free market have become more numerous and aggressive, they say.

Karel van Miert, who served as a European commissioner for transport and competition between 1989 and 1999, told the Financial Times on Tuesday : “The vehemence we have seen recently in the Mittal case, in Spain and in Poland is indeed something new and rather worrying.”

The report suggests that the Commission is fighting against some awfully powerful structural forces:
[S]ome point to a more sinister reason for the rise in hostility towards foreign suitors. “One factor is clearly the current economic malaise gripping Europe. In times when the macroeconomic conditions are less favourable, protection is always on the rise,” said Jean-Pierre Casey, research fellow and financial policy expert at the Brussels-based Centre for European Policy Studies.

High levels of unemployment in western Europe have hampered efforts to open the European services market to more cross-border competition. The centrepiece of those efforts – the services directive – now looks certain to take effect only in a heavily diluted version. Much of the hostility towards the services directive has fed on fears that workers in countries such as Germany and France would be swept aside by an influx of cheap service providers from the new EU member states in eastern Europe.

EU enlargement may also have fuelled protectionist sentiment. The EU of today is, after all, a less cosy and less homogenous place than it used to be. But perhaps the most worrying reason for recent developments is that protectionist measures in one country appear to trigger protectionist responses in other EU member states....

“There is a risk that over time this dynamic triggers a series of tit-for-tat reactions,” said Mr Casey. “That is precisely how the great depression started: one country after the other erected barriers and finally free trade just ground to a halt.”


posted by Dan on 03.01.06 at 06:06 PM


Back to the 1970s, but without a Thatcher or a Reagan equivalent in sight: stagnation, protectionism, malaise, racial hatred, terror.

Buckle yer seatbelts, folks; it's going to be a rough ride through the rest of the decade for the Continent. Which is very bad news for us as well... good thing our elites are finally getting serious about an alliance with India for this Asian Century.

posted by: thibaud on 03.01.06 at 06:06 PM [permalink]

I'm not sure that it's so easy to blame enlargement for some of these issues. It's true that France may have less homogeneity with Poland, but they're protecting against Italians. Surely the fellows just over the border aren't too culturally alien.

posted by: James of England on 03.01.06 at 06:06 PM [permalink]

The IH Tribune also has an article about this, claiming that the nation-state appears to be back. In this article another researcher of the same center says that the apparent rise in nationalism is not a serious threat to the EU's single market, but rather a symptom of how much the single market has already broken down borders in certain sectors. That progress, he said, has made Europe's economies ripe for cross-border mergers. He claims that political resistance to this is both inevitable and temporary.

I tend to agree with this. The mergers are all about industries that have always been public. It's not so strange that they start to panic a bit when such companies are taken over by foreign companies. Even if they are European. You see similar panic in cases where it involves national airline companies or national car industries. Even the French, Germans and Spanish will eventually see that this is inevitable. Just takes a bit longer...

posted by: Eric on 03.01.06 at 06:06 PM [permalink]

Or even ports.

posted by: Factory on 03.01.06 at 06:06 PM [permalink]

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