EU Infighting Over "Protectionist Steps and Statements"

The list of “make or break” events taking place in the EU and in the United States this week to address the financial crisis is long, and the number of disagreements over appropriate policy responses is even longer. In the EU, accusations of increased protectionism and other forms of unilateral action that will benefit some at the expense of others are flying.

The high price that the EU has to pay for not having a permanent and stand-alone Presidency became apparent again this week. A permanent EU Presidency would be more disconnected from the Member State Governments, as opposed to the current rotating six-month presidencies that are inherently biased on basis of national preferences. The Czech EU Presidency has summoned leaders to Brussels because of the rising risk of protectionism and economic nationalism. The Czech Prime Minister, Mirek Topolánek, reportedly cited in particular “protectionist steps and statements” on the part of French president Nicolas Sarkozy, a reference no doubt to his government’s recent announcement to provide new financing to French car makers. The call for a summit is only the most recent step in the political sniping between Paris and Prague and has been a feature of this Presidency even before it began, when President Sarkozy suggested that perhaps the Czechs should be bypassed in favor of the extension of the French term.

Although the Czech PM may be right in addressing the need to counter protectionist tendencies, the EU Treaties, the institutional framework, and case-law have successfully dealt with intra-EU protectionism for decades and, even in times of crisis, can continue to do so efficiently. Should the French support to its automotive industry be contrary to the country’s EU or international commitments, then the EC Commission will step in and require the measures to be reversed.

In parallel to the political posturing, the EU seeks, step by step, to forge a common position on concrete measures to combat the crisis. The EU in October established a high-level group, chaired by former French Treasury official Jacques de Larosière, that will present its recommendations on financial supervision and regulation on 25 February. The Commission will then use the proposals for the document it will present at the EU summit on 19 and 20 March. The likely contents of these policy proposals should soon emerge in greater detail at which point they will be analyzed on these pages.

However, the merits of the up-coming proposals will not matter if the EU states continue further down the path of political discord. The road to a successful G20 summit in London appears long for the moment.

The mood is no better in the United States, where on Tuesday, U.S. Treasury Secretary Tim Geithner unveiled the Obama Administration’s new Financial Stability Plan that was immediately attacked for its lack of detail. The stock market declined steadily and significantly from the time of Geithner’s announcement until the closing bell. Many had expected the Treasury to lay out a specific plan for removing toxic assets from bank balance sheets. The other major economic development in the United States is the approximately $800 billion economic stimulus package. President Obama has dedicated the first weeks of his presidency, and much political capital, to passing this package, which is expected to happen in the next few days. In the meantime, Secretary Geithner is headed this weekend to the G-7 Meeting of Finance Ministers and Central Bank Governors in Rome, which may provide an opportunity for him to rehabilitate his image at home.
 

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