business

The Single Market Itself Is In Question'

When Jacques Delors, the European Community's designated visionary, peers into his crystal ball these days, he sees nothing but gloom. In an Oct. 17 address, he warned that European "drift" could turn the community into a soulless free-trade zone or eventually even break up the EC.

Of course, the EC Commission president might be expected to overdo the negatives, given all the setbacks the EC has suffered lately. But as community leaders prepare to gather for an Oct. 29 special summit in Brussels, there are very few bright spots to be found. Although the Maastricht Treaty has been ratified, its key planks--Delors' cherished political and economic union--are probably on ice for at least a generation. Now, with unemployment soaring into the 12% range, concern is growing that the next victim might be the spirit, or even the letter, of the single European market. "The single market itself is in question," says David de Pury, co-chairman of giant Asea Brown Boveri Inc. "It will be hard to maintain the basic 1992 project."

This assessment would still shock the many Europeans who assume that the single market, officially launched 10 months ago, is on track. But anecdotal evidence, in the form of business deals, legislation, and subtle EC policy shifts, is suggesting that the single market, still really a work in progress, could yet stall out (table).

To date, of 219 EC laws called for in the blueprint for the single market, just 106 have been implemented with the necessary national legislation in all 12 member countries. But rising unemployment and trade tensions are making it tougher to finish the job.

Awards of lucrative government contracts are a prime example of backsliding. The single market's intent was to establish pan-European competition for public procurement projects by making the bidding process on such work more transparent. But ABB executives say that across Europe, contracts for major infrastructure work, such as power plants and rail projects, are effectively open only to those who guarantee jobs, not those who can deliver the greatest efficiency. French suppliers, for example, have already sewn up most major contracts to work on France's high-speed train expansion through the rest of this decade.

SHIFTING GROUND. The growing tendency to favor job preservation over boosting competitiveness is throwing some investment decisions into question. Michael Collier, London-based chief operating officer of Waste Management International Inc., blames pressure to preserve existing jobs for tying up legislation in Brussels that would upgrade environmental standards for waste processing and landfill development. So the company's major investments in cleaner and more efficient technology are not giving it any advantage in dealing with less efficient competitors. "We anticipated a level playing field and an upgrading of standards that haven't occurred because of economic conditions," Collier says.

The battering of the French franc and other EC currencies over the past year could spark an attack on the free flow of capital that is another foundation of the single market. For example, French Finance Minister Edmond Alphandery is calling for new rules on banks and insurance companies that would likely give national governments the right to curb lending for currency speculation.

Greece, which takes over the EC presidency in January, is already sending a dubious message to Europeans who saw privatization of monopolies as an extension of Europe 1992's free-market spirit. After returning to power on Oct. 10, socialist Prime Minister Andreas Papandreou very quickly scrapped plans to privatize the state telephone monopoly. French postal workers went on strike in October to protest a feared privatization of the phone companies.

One factor that will work against the protectionist drift is that unlike in past eras, global competition prevents Europeans from falling back on strategies that are based only on national markets. But as Delors & Co. grapple for cures for today's ills, they would be well advised to make sure that the single market initiative, Europe's great achievement over the last three decades, isn't being jeopardized.

                     WHERE THE EC
                          IS BACKSLIDING
      PROCUREMENT
      Companies say job creation is deciding factor in awards of big public contracts 
      COMPETITION
      EC officials may allow mergers that lessen competition if they save jobs
      
      CAPITAL FLOWS
      France is pushing to limit banks' and insurers' ability to finance currency 
      market speculation
      
      SUBSIDIES
      New bailout schemes for industries such as steel and airlines will test whether 
      the EC will let white elephants die
                              DATA: BUSINESS WEEK
      
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