THE RETURN OF THE MAGINOT LINE

I’m on the board of a European company that met in London recently, while there I met with senior Government advisors, labour M.P.’s and with a surprisingly liberal conservative M.P. I don’t know whether to be insulted or pleased that my writings are of interest to U.K. Tories.

The big issue raised was, "Why has Europe lost its nerve?" With the non vote beating off the misunderstood European Constitution, it was a safe bet that the ‘pause button’ would be pressed, but now politicians have pushed the ‘rewind’ button. Despite the core difference of politicians who on one side seek a vision of a more federal Europe, and those who just see the European Commission as an inter-governmental agency, a mini U.N. of Europe, all seemed to accept the proposition that a wider, open European economic zone was a good idea. To argue otherwise would be to suggest the United Kingdom would be stronger if England, Wales and Scotland had separate tax, investment, tariff and customs regimes, or if the U.S. had 50 different states managing individual economic regimes. Two world wars concentrated the minds of a generation so the wider European project has been a force for good inside Europe and a useful global partner outside Europe. An integrated Europe, we hoped, had buried the demons of nationalism. It was that economic nationalism, "beggar your neighbour", that had prolonged and deepened the Great Depression, and gave rise to those twin European tyrannies, Fascism and Marxism. The fall of communism and globalisation has given new life to nationalism. We ought to remind ourselves that while history shows that man has always travelled, traded ideas and products, and globalised, there have been setbacks. Why now? When the last 50 years have seen the greatest, most sustained lifting of living standards in human history? The process will not be stopped but it can be stalled ....... Burma, North Korea, Zimbabwe are extreme examples of nations that have closed off their societies and economies. The process stopped during the Cold War, and as many European headlines reminded us recently, in August 1914. That’s when globalisation was stopped in its tracks, passports introduced and people no longer could transfer money or invest easily across borders. Europe has stalled. Germany and France, two of the great economies, missed the reforms of the ‘80’s that many countries went through. Productivity lags behind her competitors, welfare, and taxes are higher, unemployment higher, holidays longer, research, investment lower, the population aging rapidly, if you believe in statistics, there will be no Italians in 150 years.

Many continental leaders are now just reacting. Globalisation, said the French President, is as bad as communism. Immigration, that powerful generator of wealth, is not popular, Christian Europe is reeling from what it sees as an Islamic wave which they fear threatens their social cohesion, and from China and India which they say threatens their economies. Politicians fear the impact of new European members from East and Central Europe, let alone Turkey. Protectionism is on the rise, not just against pressures from outside Europe but from inside. A job-creating European services strategy once agreed has now been rejected, big players have cynically missed agreed deficit targets.

Spanish politicians are trying to block German investment in its energy sector, Poland wants to block a European-driven banking merger, scandals erupted in Italy as bankers tried to block takeovers. France talks of economic patriotism and protecting the commanding heights of its economy with Ministers directing the state to increase its shareholdings in sensitive companies and "advising" companies to merge to beat off Italian investors-invaders. Many European governments held hands to try and stop London-based Indian, Mittal Steel, from buying up European steel companies. None of this is new historically and it’s never worked before. One definition of political and economic insanity is when leaders do the same thing, time and time again, and expect different results.

Far from saving Europe from the new competition of China and India, these restrictive, inward-looking policies will make Europe less productive, less competitive, and more reliant on taxpayers handouts, which guarantees eventual failure. Populist protectionist sentiment in the U.S. is also gathering force, all this is evermore reason to go for the big ambitious Doha Trade Deal.

If it gets too hard locally and politicians create economic Maginot Lines to pretend to protect constituents, then the very smart ones know the easiest way out is reforms through the World Trade Organisation negotiations and then they can blame the WTO for helping them do what they should have done anyway.