Blair May Drive A Hard Bargain With Europe

He's pushing hard for Anglo-American economic reform

When Europe's leaders gathered for a one-day summit in Noordwijk on May 23, they were abuzz with anticipation. Officially, they were in the Dutch seaside town to work on plans to reform the European Union. But the summit's real business was to inspect Tony Blair up close. Would the new Labor Prime Minister, they wondered, end Britain's isolation and lead it back into the European fold?

Blair sailed through the test, even though he told his European counterparts that they were out of touch with their constituents. Europe's heavy hitters took comfort from his pledge to be a constructive player in Europe--regardless of differences with its leaders. Said German Chancellor Helmut Kohl: "It is very clear that Britain wants to cooperate and to exert influence and authority."

LIKE-MINDED. But Blair's price for cooperation may prove steep. He's calling for a "radical shift" in Europe's policies toward an Anglo-American model, emphasizing competition and deregulation, that leaders such as French President Jacques Chirac resist. During Britain's recent election campaign, for instance, Blair pledged to sign Europe's Social Chapter, a charter of workers' rights to organize and have board-level representation in companies. But he still insists that Europe must sweep away job-destroying rules and encourage more flexible labor markets. And he wants the EU to enforce open competition regulations inside the so-called single market and extend them to still-protected sectors such as aviation, financial services, and energy.

Blair's strategy, says an adviser, is to offer an agenda in tune with the demands of a global economy. He realizes that Europe won't change overnight but figures he could be in power longer than Kohl, 67, or Chirac, 64. Blair, 44, also hopes for support from like-minded leaders such as Italy's Romano Prodi and the Netherlands' Wim Kok.

To show he means business, Blair recruited executive Lord Simon as his trade ambassador to Europe. The former British Petroleum Co. chairman and chief executive is an advocate of Britain's joining the European Monetary Union, but he will seek to stamp out state aid, especially to airlines such as Air France. Germany, which Britain believes is subsidizing a vast range of industries, is a special target.

But on issues dear to Chirac and Kohl, Blair is playing ball. He isn't expected to block the new European treaty due to be signed at the EU's next summit in Amsterdam in June. In return, he is winning minor concessions. When other EU members demolish all border checks, for instance, Britain should be able to continue inspections of people and goods moving into the country from the Continent.

Still, Blair is taking a big gamble. He could wind up offering concessions that hurt Britain's competitiveness, while gaining little in return. Adopting the Social Chapter is a mistake, argues Tim Melville-Ross, head of the London-based Institute of Directors. Britain owes much of its recent economic success, he adds, "to not having the kind of labor market intervention implied by the Social Chapter."

Melville-Ross and other analysts worry that Blair might box himself into joining Europe's single currency when it starts in 1999. Such participation appeals to some Blair aides, including Chancellor of the Exchequer Gordon Brown. But critics say that abandoning the British pound for the euro would lead to Britain importing the Continent's low-growth, dirigiste economy.

WIDE GULF. Blair is arriving on the scene as Europe is looking rudderless. Its key leaders, Kohl and Chirac, are confronting the harsh reality that their cherished EMU project is alienating their voters. "We need a politician who can communicate," says Keith Richardson, head of the European Round Table of industrialists in Brussels.

Blair is urging Europe's leaders to focus "on things that really matter to the people of Europe like jobs, competitiveness, the environment, and consumer rights." But there is still a wide gulf between Britain and the Continent on issues ranging from companies' rights to fire employees to how big a role the state should play in the economy. Besides, Blair is opposed strongly to the EU taking on a defense role alongside NATO, as France and Germany want.

Blair may end Britain's long standoff with the rest of Europe. Whether he can shift Europe more in Britain's direction is another question.

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