TCS Daily

TCS EU Summit Coverage: The French Mistake

By Jeremy Slater - March 31, 2005 12:00 AM

Last week, at a surprisingly perfunctory economic summit in Brussels, France and Germany teamed up to derail an effort to liberalize services across the EU. In doing so they may have dealt a fatal blow not only to European competitiveness, but to the European Union itself. The directive was meant to be the cornerstone of a program to revitalize Europe's economy by creating a true internal market in a sector that is responsible for 70 percent of its output. It was a free market proposal that added to the Treaty of Rome's founding ambition of creating an internal market in goods, capital and people.

Many who fought the proposal claimed that it threatened one of the EU's greatest successes: the creation of the so-called European social model. They argued that any appearance that this would be undermined would lead the French people to votes against the European Constitution. As a result, they successfully linked the Bolkestein directive (named for former Dutch Commissioner Frits Bolkestein, who authored it) with the French referendum on the Constitution at the end of May.

The debate became so personal that Bolkestein went on Dutch television to defend the directive and his name. His anger was obvious as he saw some of the French opposition using nationalism to promote their cause. "To clearly bind a directive to my name is to show clear xenophobic feelings," he said. "Only in France is the Germanic character of my name so emphasized."

Bolkestein claims the opposition campaign in France had little to do with the proposed law per se, but was merely a way to cause political headaches for the government of Jean-Pierre Raffarin and for President Jacques Chirac. Both are supporting the "Yes" campaign for the constitution as a way of ensuring that France remains at the heart of Europe.

The French left argues that the constitution would make create an irrevocably Anglo-Saxon European economy, thus undermining all those hard-won gains of the last 50 years. However, by so forcefully campaigning against it, as some 80,000 demonstrators did in the streets of Brussels just before last week's summit, they are in fact undermining the institutional structure that currently defends their cherished social model.

At the summit, Chirac demanded that the Commission withdraw the directive and rework it into something more politically acceptable to him. However, his demands were rebuffed both privately and in public by Commission President Jose Manuel Barroso, who pointed out that while he can work with the Parliament and the Council of Ministers to iron out problems it is up to the other EU institutions to argue and change the directive. Barroso was supported by the current Council president, Luxembourg Prime Minister Jean-Claude Juncker, who pointed out that the directive was no longer the Commission's to withdraw.

Barroso seemed pleased that he was getting some support, but his beautific smile turned into of a frown when Juncker said that of course his presidency would not condone any legislation that threatened "social dumping". That term has become a rallying call to many who oppose the directive; they claim would allow companies to employ people at lower wages than is generally acceptable in the old 15 members of the EU. The fear in countries such as Germany is that qualified contractors from bordering states would flood the local market and undercut existing businesses. In other words, competition. However, their fears are refuted by recent research into the effects of enlargement that suggests the flow in capital and investment goes both ways and tends to make such regions that border each other wealthier overall.

The face-off developed into a battle of political wills, with Chirac fighting for the Constitution but against the services directive and Barosso fighting for both. It is interesting that while both presidents are nominally right-wing in their outlook only one of them is willing to fight for right-wing economic policies. But then France is a politically strange place.

The services directive also soured Anglo-French relationships. The UK prime minister, Tony Blair -- who had stayed silent if not supportive at moments during this debate because he understood the French president's fears for a "no" vote -- found himself turned upon by Chirac and criticized over the British rebate from the EU budget.

It seems that a meeting that was meant to discuss the modernization of the European economy was anything but with EU leaders intent on opening up new wounds or trying to settle old scores.

Perhaps those who argue against the Constitution in France and across Europe are not doing themselves any political favors. Surely a yes vote on May 29 would put more pressure on the UK, and its likely Labour government, to win a referendum sometime in 2006, which for the moment seems improbable. According to many on the French left New Labour is the arch enemy of the social model, and the UK the inventor of "capitalisme Anglo Saxon". If the UK votes against the constitution one of the EU's biggest advocates for reform might be asked to leave the club and to take its ideas with them. But this may be a bit too sophisticated a political argument for the French left to grasp.


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