Suddenly Europe's Bosses Are Up in Arms

Business is pressuring EU leaders--loudly--for economic reforms

Keep your head down. Speak softly. Go for consensus. Europe's chief executives have largely lived by those Milquetoasty precepts when it came to the delicate matter of dealing with its governments. Many a boss would say privately that he yearned for the marketplace freedoms that his peers in the U.S. enjoy. But to demand such freedoms from the great welfare states of Europe was simply not done. Occasional, private consultations with a Prime Minister or perhaps a finance ministry--that was possible. But blunt, in-your-face demands for change? Jamais.

That's why January's events stand out so sharply. In a Jan. 14 open letter to Spanish Prime Minister Jose Maria Aznar, who is beginning a six-month stint as president of the European Union, the leaders of powerful business federations such as the Confederation of British Industry, the German Federation of Employers, and Italy's Confindustria spell out some bitter truths. Europe is falling far short of its potential, they say, and any idea that Europe's economies could drive world growth in their present state is a joke. "The very credibility of the process [to make Europe more competitive] is at stake," they add darkly.

Fighting words. And there are more to come. Across the Continent, business is mounting an unprecedented lobbying campaign to pressure political leaders into moving on stalled economic reforms. Apart from the traditional federations, the informal but influential European Roundtable of Industrialists--a group that includes ThyssenKrupp, Telefónica, Saint-Gobain, and Nestlé--is also taking European governments to task. In a tough mid-January statement, the roundtable listed nine areas where it believes action must be taken, from liberalizing gas and electricity markets to eliminating tax obstacles on cross-border activities. "The urgency is now acute," says Daniel Janssen, chairman of Belgian chemical giant Solvay.

Can the bosses' revolt actually make a difference? Initially, it's hard to see what impact their ire can have. European executives operate under constraints that any American manager would find suffocating. Sky-high social security taxes, stiff workplace regulations, myriad trade impediments--all have been instituted by national governments for years and are only gradually receding, if at all.

But you have to start somewhere. And the bosses know that they may have more of an effect this year, when major elections are slated in France and Germany. Business groups in Europe tend not to support individual candidates or parties, but they can play a crucial role in commenting on the strength of a candidate's economic platform. Already, some top CEOs such as Bernhard Scheuble of Darmstadt-based drugmaker Merck have hinted that they prefer the program of Edmund Stoiber, the conservative opponent to German Chancellor Gerhard Schröder in next fall's election.

The bosses' angry declaration should also trip an alarm bell for the whole EU. Put simply, they are speaking out because Europe just can't get on a strong growth track. The average growth of EU countries hit more than 3% in only one year out of the past 10. By contrast, the U.S. growth rate never fell below 3% during that period (except for last year). The result: By 2001, per capita gross domestic product in the EU was less than two-thirds that of the U.S.--the widest gap since the 1960s. "Far from bringing us up to American levels, the European Union has left us farther behind," says Janssen.

In an effort to help ignite growth, business groups are concentrating their firepower to support EU President Aznar's ambitious liberalizing agenda for the Mar. 15 European summit in Barcelona. But the real problem is getting national governments to implement the fine words and promises. Nowhere is this more true than in France. The center-left government of Prime Minister Lionel Jospin has been not only blocking needed economic reforms since it took power in 1997 but also pushing through controversial legislation, such as the 35-hour workweek and rules making it more costly to lay off workers. "What do you have as business-friendly policies in the last five years in this country?" asks Henri de Castries, CEO of Paris insurance giant Axa. "Zero. Nothing."

Now French business is on the war-path, led by the increasingly outspoken Paris-based employers federation MEDEF. At a congress in Lyons in mid-January, over 2,000 MEDEF members adopted a wish list of reforms they want addressed by candidates in campaigns for the presidential election in April. Never before have France's "patrons" been as vociferous as they are now. "We used to be a discreet, almost underground lobby," says Ernest-Antoine Seillière, MEDEF chief. "But the next government absolutely has to institute changes, and that's why we now want this discussion in the open." Considering the vast amount of press MEDEF and Seilliere have been getting, the effort is succeeding.

German business also is beginning to clamor. An initial honeymoon with the Schröder government ended in mid-2000 when Berlin curtailed business-friendly reforms and shifted to appeasing the union-dominated left wing in Schröder's Social Democratic Party. On Jan. 17, for example, the Federation of German Industries sponsored a forum on tax policy attended by Finance Minister Hans Eichel. Federation President Michael Rogowski complained that tax reform didn't go far enough, embarrassing Eichel. To Schröder's people, business is ungrateful. "Some business associations are making positive comments about Edmund Stoiber," says German Economics & Technology Minister Werner Müller. "That's no surprise. But the election will be decided by working people, not lobbyists." True, but working people depend on bosses for jobs, and those bosses are increasingly desperate for change.

By John Rossant in Paris, with Jack Ewing in Frankfurt

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