Where’s Europe?

As the global financial crisis transforms itself inexorably into economic crisis and now industrial crisis, the cry “where’s Europe?” can be heard across the EU. So far, Brussels’ response has been less than reassuring.

As the global financial crisis transforms itself inexorably into economic crisis and now industrial crisis, the cry “where’s Europe?” can be heard across the EU. So far, Brussels’ response has been less than reassuring.

The European Commission’s watchword has been that the integrity of the Single Market must be defended at all costs, and that it will use its formidable legal powers to ensure that bailouts and other state aid by EU governments do not distort fair competition. It is a familiar mantra, and among industrialists the mood now seems to be hardening that it is not enough.

With anxiety mounting across Europe that industrial lay-offs will mean major plant closures and cascading job losses in thousands of smaller companies, national governments find themselves on a collision course with the EU, though they know that their best chance of salvation lies in concerted European action.

In Brussels, there is awareness that the crisis offers real political opportunity, even if the Commission has yet to grasp it.

The time has come for a new EU industrial-policy framework that would permit Brussels to use its “honest broker” status to manage competing interests.

The Commission’s eurocrats should dust-off their files from 30 years ago and recall how their predecessors handled the steel crisis that then threatened to provoke an intra-European trade war.

In the late 1970’s, the Commission declared a state of “manifest crisis” and agreed with member governments the details of what came to be called the Davignon Plan.

Drawn up by the Belgian member of the Commission who held the industry portfolio, several of its provisions are clearly relevant to the current situation, not least to the automobile industry.

The Davignon Plan imposed Europe-wide production and price controls, monitored and coordinated national governments’ state aids, organized the closures of outdated plants, encouraged mergers, and awarded EU funding to retraining schemes for redundant steel workers.

Its overall aim was to make the backbone of Europe’s heavy-engineering sector more competitive internationally. The plan’s author, Vicomte Etienne Davignon, recently commented in the Belgian press that he can’t understand why the Commission is not doing something similar today.

“To do so would legitimate national aids (to carmakers) but would ensure they are based on a common EU-level strategy,” he wrote.

The signals from the Commission, though, are not encouraging. Industry commissioner Gunther Verheugen recently reacted to calls by both General Motors and Renault for a more “proactive” EU role in coordinating bailouts by saying: “There will be no sector-specific plans whatsoever.”

He emphasized that Brussels has neither the funds nor the desire to rescue the motor industry, and sees little similarity between the systemic risks of the financial services sector and the problems faced by the manufacturing branches.

That will be a matter of opinion until the recession begins to abate; the truth is that we don’t yet know whether this crisis will be a snowball that grows layer by layer or an avalanche that sweeps away entire industries. In either case, the Single Market will come under increasing pressure.

The Commission rightly says that in this age of globalization there is no longer such a thing as a national carmaker, but there are still national plants and national payrolls that politicians facing elections will be desperate to defend.

It doesn’t really matter whether a new crisis-beating EU strategy bears some resemblance to the largely forgotten Davignon Plan. The important point is that Europe should be seen to have set out a common framework for addressing the slowdown.

Eurocrats insist that the necessary policy instruments and rules are already in place, but that is to ignore political reality. Unless the EU’s internal-market rules can be made more flexible, member governments will flout them.

The crisis has also underscored a longer-term need for a more concerted EU approach to industrial policy. There is a growing awareness in Europe that the crisis is set to re-shape our industrial base, as Asian countries take over from the EU and the United States many of their advanced technology fiefdoms.

But Europe’s 10-year-old Lisbon strategy to secure global high-tech leadership is widely discredited, which is a further reason to include a large R&D component in any EU-wide industrial program.

Presentation is an essential part of any political process, and it’s the part where the European Commission is least competent.

Industrial leaders and ordinary citizens alike want to be told that the EU is working on a policy approach that looks farther ahead than the gloomy present.

Verve and fanfare may be alien to Brussels, but what is urgently required is a sense of political showmanship that restores confidence in the European project as well as the economy.
Giles Merritt is Secretary-General of the Brussels think tank Friends of Europe, and Editor of the policy journal Europe’s World.

Copyright: Project Syndicate, 2009.

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