Europe's drift to mercantilism
Sunday, 1 July 2007
Wolfgang Munchau
"Competition as an ideology, as a dogma, what has it done for Europe? Fewer and fewer people who vote in European elections and fewer and fewer people who believe in Europe."
Nicolas Sarkozy at the recent EU summit
As European Union leaders ended one epochal conflict, did they start another? Angela Merkel, German chancellor, and her fellow negotiators finally got their "reform treaty". It is similar in substance to the rejected constitution but differs in form. There will now be two treaties instead of one and they will not be called a constitution. The new voting system is delayed and the UK has its opt-outs. Europe's leaders decided this was a price worth paying. They were right. The EU had to get this over with or else it would have risked disunity and irrelevance.
This is not a great treaty, but it contains important and worthwhile innovations. I personally care much less about the big headline themes - such as the president of the European Council, the new foreign policy chief or the charter of fundamental rights. More important are a host of subtle but important procedural changes. For example, the new treaty will make it a lot easier for the eurozone to take decisions concerning itself. With a new treaty in place, the EU can move on. This is good news. But the big question is: move on to where? This is where the news is not so positive.
Possibly the single most important substantive difference between the old constitution and the reform treaty is the removal of undistorted competition as a policy goal. This was Nicolas Sarkozy's big coup and evidence, if such were needed, that there is a European dimension to his revolution.
The French president managed to get his colleagues to agree to an amendment of Article 2 of the old Constitutional Treaty, which said: "The Union shall offer its citizens an area of freedom, security and justice without internal frontiers, and an internal market where competition is free and undistorted." The new treaty drops the final part, and inserts the statement that "the Union shall establish a single market" in a subsequent clause. Sustainable development, based on balanced economic growth - whatever that may mean - is still an official goal. Free and undistorted competition is no longer. This is insane.
Tony Blair, UK prime minister, managed to insert a protocol that says the internal market "includes a system ensuring that competition is not distorted". I have no idea what the precise legal implications of the relegation of free competition from first-order objective to protocol status will be; nor what practical changes it will entail in actual competition cases. I suspect it will have some impact in the long run, as the European Court of Justice must ultimately take this change of priorities into consideration.
But this is not about the narrow remits of competition policy. This change of wording is important because it tells us how the EU perceives itself and what it intends to do in the future. The EU has received much of its integrating energy and policy agenda from all those verbose treaty preambles and statements of objectives. If competition is no longer a first-order objective of the EU, then it is fair to assume that market integration and liberalisation may proceed with less urgency in the future than it did in the past.
It also tells us that Europe's commitment to a liberal trade policy should not be taken for granted. The multilateral trading system, one of the foundations of the rise in global prosperity in recent decades, is in enough difficulty already. This is about the worst moment for Europeans to seek refuge in the warped ideas of Jean-Baptiste Colbert, the 17th-century mercantilist par excellence.
The revival of Colbertism suggests fewer market freedoms, less competition, more economic nationalism and trade protection, exchange rates managed by politicians, and a macroeconomic policy based on short-sighted goals. Europe's future does not lie in ideas of the pre-enlightenment era.
As the man who promised to unlock the French No vote, Mr Sarkozy was in a powerful negotiating position at the summit. He won with ease, and neither Ms Merkel nor Mr Blair dared put up a fight. Like the British, the Germans have their own red lines - such as the European Central Bank's independence and the price-stability objective. As long as Mr Sarkozy does not cross these, I would expect Ms Merkel to play the role of a willing accomplice in this game, just as did Mr Blair at his final summit.
Those concerned about the gradual erosion of market freedoms would be well advised to regroup and select a new target. Forget about the constitution. The new treaty is a done deal. Do not waste your time campaigning for a referendum in the vain hope this may derail the process, unless you want your country to leave the EU. The constitution and its various technical and institutional innovations are little more than a deflection from the real threat - the re-emergence of European mercantilism. This is the fight that needs fighting.
.......................................
FT Syndication Service
"Competition as an ideology, as a dogma, what has it done for Europe? Fewer and fewer people who vote in European elections and fewer and fewer people who believe in Europe."
Nicolas Sarkozy at the recent EU summit
As European Union leaders ended one epochal conflict, did they start another? Angela Merkel, German chancellor, and her fellow negotiators finally got their "reform treaty". It is similar in substance to the rejected constitution but differs in form. There will now be two treaties instead of one and they will not be called a constitution. The new voting system is delayed and the UK has its opt-outs. Europe's leaders decided this was a price worth paying. They were right. The EU had to get this over with or else it would have risked disunity and irrelevance.
This is not a great treaty, but it contains important and worthwhile innovations. I personally care much less about the big headline themes - such as the president of the European Council, the new foreign policy chief or the charter of fundamental rights. More important are a host of subtle but important procedural changes. For example, the new treaty will make it a lot easier for the eurozone to take decisions concerning itself. With a new treaty in place, the EU can move on. This is good news. But the big question is: move on to where? This is where the news is not so positive.
Possibly the single most important substantive difference between the old constitution and the reform treaty is the removal of undistorted competition as a policy goal. This was Nicolas Sarkozy's big coup and evidence, if such were needed, that there is a European dimension to his revolution.
The French president managed to get his colleagues to agree to an amendment of Article 2 of the old Constitutional Treaty, which said: "The Union shall offer its citizens an area of freedom, security and justice without internal frontiers, and an internal market where competition is free and undistorted." The new treaty drops the final part, and inserts the statement that "the Union shall establish a single market" in a subsequent clause. Sustainable development, based on balanced economic growth - whatever that may mean - is still an official goal. Free and undistorted competition is no longer. This is insane.
Tony Blair, UK prime minister, managed to insert a protocol that says the internal market "includes a system ensuring that competition is not distorted". I have no idea what the precise legal implications of the relegation of free competition from first-order objective to protocol status will be; nor what practical changes it will entail in actual competition cases. I suspect it will have some impact in the long run, as the European Court of Justice must ultimately take this change of priorities into consideration.
But this is not about the narrow remits of competition policy. This change of wording is important because it tells us how the EU perceives itself and what it intends to do in the future. The EU has received much of its integrating energy and policy agenda from all those verbose treaty preambles and statements of objectives. If competition is no longer a first-order objective of the EU, then it is fair to assume that market integration and liberalisation may proceed with less urgency in the future than it did in the past.
It also tells us that Europe's commitment to a liberal trade policy should not be taken for granted. The multilateral trading system, one of the foundations of the rise in global prosperity in recent decades, is in enough difficulty already. This is about the worst moment for Europeans to seek refuge in the warped ideas of Jean-Baptiste Colbert, the 17th-century mercantilist par excellence.
The revival of Colbertism suggests fewer market freedoms, less competition, more economic nationalism and trade protection, exchange rates managed by politicians, and a macroeconomic policy based on short-sighted goals. Europe's future does not lie in ideas of the pre-enlightenment era.
As the man who promised to unlock the French No vote, Mr Sarkozy was in a powerful negotiating position at the summit. He won with ease, and neither Ms Merkel nor Mr Blair dared put up a fight. Like the British, the Germans have their own red lines - such as the European Central Bank's independence and the price-stability objective. As long as Mr Sarkozy does not cross these, I would expect Ms Merkel to play the role of a willing accomplice in this game, just as did Mr Blair at his final summit.
Those concerned about the gradual erosion of market freedoms would be well advised to regroup and select a new target. Forget about the constitution. The new treaty is a done deal. Do not waste your time campaigning for a referendum in the vain hope this may derail the process, unless you want your country to leave the EU. The constitution and its various technical and institutional innovations are little more than a deflection from the real threat - the re-emergence of European mercantilism. This is the fight that needs fighting.
.......................................
FT Syndication Service