[March 20, 2006]

When national interest matters more than size

(The Birmingham Post Via Thomson Dialog NewsEdge)Europe created a common currency but seems unwilling to accept one of the logical consequences - industrial consolidation and cross-border takeovers where size and reach count, not national interests.

Government hostility to German and Italian bids for France's Suez and Spain's Endesa groups suggests the birth of Europe Inc will be harder than that of the euro and the surrender of national control over monetary policy in 1999.

Jean Pisani-Ferry, director of the Bruegel economic think-tank in Brussels said: "One could have expected this giant step forward to play the role of the mother of all structural reform. In fact, the opposite has happened."

On top of the French and Spanish controversies, the Warsaw government attacked an Italian takeover of a Polish bank, part of a larger and long-agreed takeover of Germany's HVB group by Italy's UniCredito.

Mr Pisani-Ferry argues that Europe's leaders took their foot off the accelerator once the euro was born and that this lack of purpose, combined with years of poor economic growth, has undermined Europe's legitimacy.

"All in all, the economic implications of the euro have been underestimated and the same can be said of the degree of political commitment it requires," he said. That raises the question of how an economic project can work without a political structure to foster it.

European Commission president Jose Manuel Barroso would like to think the reactions of France, Spain, Poland and others to foreign takeovers are what he calls the EU's growing pains.

The issue is arguably bigger nowadays than the limitations of the euro zone or 25-nation EU at a political level, however.

With popular concern over globalisation and security, there is fertile ground for nationalism, patriotism or protectionism.

Katinka Barysch, an economist at the think-tank Centre for European Reform, said: "As economic competition increases and the pace of change accelerates, governments are trying to tighten their grip on what levers they have."

Companies increasingly think globally when it comes to opening a factory or where they hire labour. Transport and freight are much cheaper.

China and India, the world's most populous economies, are opening and expanding at breakneck speed.

That is triggering big shifts in the location of labour and production, stretching the gap between governments who answer to national constituencies and businesses that fight it out on an international scale.

Hand-in-hand with concern over economic globalisation is the US war on terror, and heightened security fears in the world.

Dubai has decided to sell US port management operations which a state-owned Dubai firm was in the process of buying, after a furore among US lawmakers who said this presented a threat to national security.

Objections from Capitol Hill also scuppered a Chinese bid to take over US oil company Unocal. And China, opening up but tightly steered by the Communist Party, is breeding an economic patriotism of its own, developing homespun technology for highspeed trains and mobile phones and starting to question if it is letting foreign investors buy into its companies too easily and cheaply.

South Korea, too, is having doubts because of an American bid for its tobacco company.

For Ms Barysch, Europe's anxiety over globalisation is as much about the EU's eastwards expansion to Poland and other former communist countries as about China, and the fact that the older, wealthier EU members now fear cheap competition "from within".

"You can put anti-dumping duties on Chinese shoes but not on Polish furniture," she said.

Recently, France and other countries forced the EU to gut a directive on service sector liberalisation of its most potent parts because of public fears of an invasion of workers such as Polish plumbers who might put others out of work.

[ Back To TMCnet.com's Homepage ]

Discussions: