New leaders, new divisions

The political landscape in Europe has changed significantly in recent months, bringing into sharp focus differing visions of the economic future of the European Union. The election of Nicolas Sarkozy as president of France in place of Jacques Chirac, and Gordon Brown assuming the UK premiership from Tony Blair has removed from the scene two of the region’s longest-serving and most important leaders.

This change is not just an internal political concern for each country. It will have important effects on Europe as a whole, and its relations with the rest of the world.

Now, the key factor in pushing policy change are the efforts of the new French president to impose his view of Europe on his counterparts. Sarkozy sold himself to the voters as a man with radically pro-market domestic reform plans – at least by French standards.

While most European partners of France would applaud these aims, some of his other policy declarations have caused concern.

Protectionist goals?

One of his biggest triumphs so far has been getting the wording of the new EU reform treaty changed so that “free and undistorted competition” is no longer identified as one of the fundamental aims of the EU’s internal market. As a result, Sarkozy was able to declare that competition is merely a dogma, and protection is no longer taboo.

He has also called for intervention to ensure that the euro’s exchange rate favors European businesses and has attacked the European Central Bank for its interest rate policy, which has brought rising costs of borrowing, threatening to stifle economic recovery.

The possible international impact of the new French president’s policy positions goes even further. Sarkozy wants the EU to do more to protect European industries, and proclaimed the virtues of economic nationalism. He has more or less openly called for the head of the Trade Commissioner Peter Mandelson for failing to protect EU firms from outside competition, notably from China.

It is still unclear to what extent Sarkozy’s attacks on EU economic policies stem from a genuine belief that the changes he advocates will actually help France, or the rest of Europe. It is possible that it is all a smoke screen, intended to divert domestic attention from some of the more controversial aspects of his reform policies.

Even if his policy pronouncements are genuine, there is no guarantee that they will achieve anything. Other governments are opposed to many of his aims. For example, the wording of the new treaty, conceded by Tony Blair in one of his last acts, was apparently strongly opposed by Brown.

Although sometimes touted as being more in the mold of traditional Labor Party politics, Gordon Brown has if anything shown himself to be more of a skeptic on Europe than Blair, and has frequently drawn unfavorable comparisons between the performance of mainland European economies and the UK.

Germany’s Angela Merkel, another leader not long in power and one who presides over a much improved economy, is unlikely to support the undermining of institutions such as the European Central Bank and the euro by placing them under the direct influence of political considerations. Indeed, Germany’s recent economic revival has come within exactly the same European policy framework that Sarkozy complains about.

The Beijing angle

China does not directly feature in much this debate, but there is no question that it looms in the background.

The challenge of China is undoubtedly seen as part of the problem of economic policies in Europe. To a large extent these are problems of European competitiveness in a global economy. While Sarkozy may wish to make the French economy less rigid, he has no intention of allowing it to be subject to the full force of the global marketplace, of which China is an important part.

The arrival of Sarkozy has not yet brought any substantive change in European policy toward China, but it has sharpened the debate in Europe over the direction it should be taking.

If nothing else, these discussions will undoubtedly force the trade officials in Brussels to offer a strong defense of their existing policies. This may in turn push them to take a stronger line on the problems between Europe and China that so far remain largely unresolved.