Pulling punches

Mar 18th 2002
From The Economist Global Agenda


European Union heads of government managed to agree on enough of their ambitious reform agenda to avoid the Barcelona summit being branded a failure. But they ducked many of the biggest challenges they face



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Didn't we do well?


EUROPEAN UNION (EU) summits are not allowed to fail. While sometimes it might be more truthful if EU leaders were to emerge from one of their get-togethers to announce—“We had a massive argument. We’ve got nowhere. It’s all a bit of a disaster”—convention dictates that the closing press conferences always refer to “solid achievements”, “encouraging progress” and so on.

The EU’s Barcelona summit, which ended on March 16th, was no exception. The meeting was dedicated to economic reform, and was played out against the usual backdrop of noisy “anti-globalisation” demonstrations and massively over-the-top security. If nothing else, the demonstrations did illustrate that economic liberalisation in Europe presents genuine political difficulties—with influential sections of public opinion viscerally opposed to anything that they imagine threatens “social Europe”; the ideal of a cradle-to-grave welfare state.



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The European Union posts the conclusions of the Barcelona summit. The EU details its policies on energy, takeovers and patents. The Centre for European Reform, a British think-tank, provides research and analysis on the EU's economic policies and other EU policy issues.


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About Global Agenda





Under these circumstances, it is not surprising that Barcelona produced only mild progress for the EU’s economic-reform agenda. The totemic issue going into the summit was opening up Europe’s energy markets. The French government has fought hard to preserve the protected domestic market of its state-owned national champion—Electricite de France (EDF). At Barcelona, it made a well-flagged tactical retreat. The summit conclusions announced that from 2004, industrial users across Europe would be able to choose from competing energy suppliers. According to the summit’s conclusions, that should account for “at least” 60% of the market.

Since the European energy market is a euro350 billion a year industry—and one which provides a fundamental input to most other businesses—the agreement achieved at Barcelona was a breakthrough. But even the energy deal has its disappointing aspects. Confining competition to business users makes it harder to show that economic liberalisation is actually the friend—not the foe—of the ordinary person. It also means that EDF will retain a monopoly in the most profitable sector of the French market. That means that it may continue to be seen as an unfair predator by other European companies when it attempts to expand overseas—which may in turn affect European willingness to agree on another big, unfinished item on the EU’s economic agenda; the agreement of a pan-European takeover code.

The other alleged achievements of the Barcelona economic summit turn out to be even more fragile on closer inspection. Europe’s leaders pledged to increase the amount of money that the European Union spends on “research and development”—from its current figure of 1.9% of GDP a year, to 3%. They are keenly aware that the United States spends euro76 billion more a year on R&D. But how will European politicians compel European businesses to invest more in research? Nobody seems to know. And the one big research project agreed on at Barcelona—the Galileo satellite-positioning system, which will cost euro3billion of public money—is of dubious commercial value, since the Europeans currently enjoy free access to the United States’ global positioning system. While the French see Galileo as a crucial strategic goal with military implications, the British and the Dutch have only reluctantly agreed to go along with a system that they regard as a costly political showpiece. Edward Bannerman, head of economics at the Centre for European Reform, a Blairite think-tank, describes Galileo as “the Common Agricultural Policy in space”. Other parts of the summit conclusions simply sound like wishful thinking—like the promise that all EU countries will have balanced budgets by 2004.

Perhaps most importantly, some key areas of economic reform have simply remained untouched. There was no attempt to make progress on securing common rules for a European patent, or on liberalising the market in rail freight—which is arguably just as important to a genuine single market as energy. And European leaders are still far from grasping the nettle of labour-market reform. That will be crucial to any attempt to achieve the target of 20m new jobs in Europe by 2010. But any talk of making it easier to hire and fire is anathema in a year in which there are elections in both France and Germany.

As a result, and despite the brave words of the summiteers, there is an undeniable sense of post summit anti-climax among those who had hoped that Barcelona would provide a decisive push forward for economic liberalisation in Europe. The best that Mr Bannerman at the CER can say is that “the patient is still alive”.