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The aneurism at the heart of Europe

Here we go again- Europe is dominating our politics, much against everyone's wishes. Like the proverbial mother-in-law (an unfair proverb), she will not go away and let us get on with running our affairs in what we are most of us these days agreed is a sensible freeish-market manner.

The top of New Labour is in denial, after enduring two dreadful weeks at the hands of the well-Sunned Herr Lafontaine. Messrs Blair and Brown threaten a tax veto one day, and the next say that they do not think Lafontaine, Strauss Kahn and co really mean it all, it will surely be resolved in the usual Euro-foggy compromise which we will somehow live with. I am sorry to have to remind them that this has been going on for an awfully long time and we have gradually surrendered more and more of the elements of our way of doing things that once we swore were non-negotiable: the interference in privatisation and contracting-out ('TUPE') , the intrusive equal rights Euro-rulings, working time restrictions, the raising of VAT rates, the consultative worker councils, the raising of freezer temperatures in retail stores, the closing of butchers and slaughter-houses, and so very much else stemming from the Single Market that is in practice reducing not spurring competition. Now of course every housewife knows that the New Labour project to join the Euro ('not if but when', so they have told everyone in Europe that counts, except their own citizens) threatens to extend that list to taxation and the whole 'social dimension'. That knowledge is running wildfire through the countryside, well out of the control of the new 'great and good' plotting to back-door us into Euroland.

It is perfectly true that the continental philosophy of high social costs, strong unions, and extensive worker rights flies in the face of the modern pressures of globalisation. Anglo-Saxon economies with their greater flexibility have managed on the whole to enjoy better growth, higher employment and much lower unemployment in the past few decades when footloose multinationals have been dredging the world for better value; continental workforces have been sitting ducks for labour-shedding and industrial relocation- to Poland, to the Far East, to the UK, to any place almost that could grant an escape from the heavy costs of Social Europe. Optimists about the European Third Way of Stakeholderism point to the low unemployment rates in Austria, Denmark and Holland as evidence that it can work in the new era. But even if one accepts this at face value- and massage has been liberally applied say in Holland through generous early retirement pensions-, the fact is that these are small countries which can batten on their large neighbours offering and edge in incentives to undercut the Franco-German-Italian collossus and bring jobs to their little corner. So unemployment in the Big Three remains stubbornly high, in double digit percentages, and they respond by restricting participation and working hours as well so that total hours of actual employment are even worse than the unemployment percentages would suggest.

So we might be tempted to expect the continent would abandon this philosophy- see the Anglo-Saxon light as it were. Anyone with the slightest knowledge of continental history and culture knows this to be unlikely if not impossible. This is the continen t of corporatist politicians (Bismarck, Hitler, Mussolini, Napoleon) and corporatist philosophers (Hegel, Kant, Rousseau). There has been the French Revolution and Declaration of Rights; in Germany there is the Basic Law awarding Human and so Worker Rights; in Italy there is the interventionist Papal tradition (on which the current more free market Pope has made little impact). Were the continent to have the sort of participative democracy we are familiar with possibly a party could arise which aroused po pular support for sweeping reform and obtained a commanding majority in Parliament, much as Mrs. Thatcher did from 1979. But the obstacles are huge as was illustrated recently by Berlusconi's failure in Italy- he could not convince public opinion to abandon social intervention, so he backed and filled on populist ploys, until toppled by the usual rivalries. As for Herr Kohl, supposedly a conservative and allied to the free market Liberal Democrats, during their governments Germany's social costs rose and rose. The Gaullists in France have proved similarly interventionist, fiddling the pensions books, caving in to Air France and continuing with the time-worn French Way of Mandarin-Runs-All.

It will not therefore change. And, granted that it will not, it is an obvious corollary that the Big Three should object to others pinching their jobs. They can stomach little countries doing so provided they are generally helpful in other areas, becau se their effect is small. But large countries like Britain and Spain are another matter; they are a big threat. Spain has agreed to bring its social dimension into line as the price of being in Europe; we have not. Nor could we do so since we have to rema in competitive in a fierce world market for services where we compete (and cooperate too) mainly with the Americans. Our national interests are therefore diametrically opposed to those of the continental powers. Those powers will go on corralling us on th ese matters until either we give way and join up a la Spain or we do not and stay out, on some evolving looser relationship.

What can now be seen plainly is that the Euro as a technical matter of making a single currency work has become secondary to a wider politico-economic battle. The Euro is being used to kick us into line on broad matters of competitiveness. New Labour's hopes that this nasty old controversy will go away are a comforting illusion. Public opinion can hardly let this government trample on our national interest as a competitive economy in order to be at the Heart of Europe. What New Labour badly needs now is a heart bypass before its policy seizes up terminally.

Patrick Minford is professor of economics at Cardiff Business School and visiting professor at Liverpool University.
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