Europe’s Neo-Protectionists

LONDON –The high-speed train that links Continental Europe to the British land mass via the so-called Chunnel takes all of two hours. A traveler rapidly crosses borders as technology annihilates distance. As I took it the other day, I thought about Europe’s generally open borders, the free flow of goods and services, and the growing mobility of capital and investments.

Not that Europe is (by any means) some kind of Ricardian dream brought to life. Despite heartening signs, there continues to be a deep, ideological struggle going on in the heart of the sclerotic EU. In fact, several recent examples show that it is the EU itself — well, more precisely, certain Commissioners within it–that seems to be on the side of the market this time, bucking decades of statist trends.

For the past two years, some European observers have watched with growing dismay as economic nationalism has reared its ugly head in countries throughout the EU. Taking advantage of growing populist sentiment at home, country-level politicians in France, Luxembourg, Poland, Spain have trotted out tired old protectionist ideas and proposed new barriers to recent cross-border mergers.

In 2005, Italy’s Central Bank successfully blocked a merger between Spain’s BBVA and Banco Nazionale del Lavoro (BNL), Italy’s sixth-largest bank. Bank governor Antonio Fazio vociferously opposed the merger from the beginning citing national interests. He orchestrated a counter-offer behind-the-scenes to repel the offer from BBVA–in order to prevent BNL from being sold to foreigners. (In the face of criticism, Fazio later added that none of this was part of an explicit “anti-foreigner” policy.) In the end, despite pressure from the EU’s Internal Market Commissioner Charlie McCreevy, Italian national interests won out and the BBVA withdrew its offer.

In Poland, a 2005 merger between Bank Pekao, partly-owned by Italy’s UniCredit Group, and Bank BPH, a subsidiary of a German bank bought by UniCredit, has been delayed for over a year by Poland’s populist government. Polish politicians have cited potential job losses, spoken of strategic national interests and pointed to legal minutiae as reasons to block the merger. Although Poland and the Italian bank reached a compromise in April, recent news reports indicate that continuing political turmoil in Poland may result in a renegotiation of terms.

And earlier this year, the French parliament began discussing the promulgation of a new law designed to protect strategic industries under the banner of “economic patriotism.” (This troubling expression was coined by Prime Minister Dominique de Villepin in 2005 when fears spread about a possible takeover of France’s Danone by the US’s Pepsico.) Months ago, Paris-based politicians had already prepared a list of strategic industries to be “protected” from so-called foreign “corporate raiders.”

Whatever the rhetoric used, neo-protectionism seems to be on the rise in Europe. What is fascinating, however, is that it is the EU–specifically, the offices of the Internal Market Commissioner and the Competition Commissioner–that seem to be on the side of the market. It is the EU that has spoken out against economic nationalism and urged member countries to knock down (not erect) barriers to competition and investment. This is a trickle of very good news from the Belgian heart of darkness.

Still, it may be too early to celebrate the EU bureaucracy’s apparent conversion to the market. While it has given signs that is respects and is willing to protect cross-border mergers and investments, the EU also gives contradictory signals. I am reminded of the fine of 500 million Euros ($627 million) imposed on Microsfot by the European Commission for allegedly using its OS dominance to bully software rivals out of the market. Consider also the blood-chilling fact revealed recently by the EU’s own Enterprise Commissioner that the costs [to private business] of complying with EU legislation and regulations will be nearly 600 billion Euros this year.

It’s hard to put a finger on what is really going on. Some observers suggest there is an ideological battle going on deep within the EU’s bowels. But it is not clear which side has the lead–and whether the EU is evolving slowly from a confederation to supranational union, or whether we are seeing signs that the EU is finally allowing “free minds and free markets” influence some of its policy approaches. What can be said is that despite the intermittent support for cross-border mergers, the EU continues to be the bugbear to those who believe in Schumpeterian creative destruction and Hayekian notions of spontaneous order. The EU, in other words, still seems to be hell-bent on regulating and supervising everything within its suffocating embrace.

With regards to multi-million dollar cross-border mergers, however, I’m afraid I would have to partly sympathize with the country governments mentioned above. Although I may find the economic and efficiency gains arguments on behalf of cross-border mergers enticing, even convincing; there is something [positive] to be said about not having everything be the provenance of foreign transnationals–especially if they are receiving support, protection and/or encouragement from Europe’s leading bureaucrats. (Isn’t this the kind of unholy collusion of interests that Tim Carney so eloquently warns us about in his recent book?)

If we invoke Jefferson, and think of Burke’s little platoons, I think we might think more carefully about the implications of international corporate mega-mergers–and perhaps find ourselves increasingly on the side of the local and the know, the organic and the familiar. Frankly, I do not think it a sin to question some mergers. (Why should international consolidation automatically and always be good?) In short, I distrust multinational governance structures like the EU and think national governments like Poland’s have the right to mitigate the local effects of corporate takeovers. In fact, I urge everyone to do whatever is required to keep big government, big corporations, big bureaucracies–or even just big banks–increasingly out of our lives.

Alvino-Mario Fantini is Europe correspondent for Brainwash. He is currently an Erasmus Mundus scholar through the European Union.