This column has commented on last Sunday's informal summit as a whole. Certain specific points, however, deserve further consideration, in the light, too, of the initiatives and stances presented or announced by the Commission president on Wednesday (see yesterday's newsletter). Mr Barroso's announcements make it clear that the EU has gone beyond the time for analyses and reports, and moved into the operational phase of the radical reform of European and international financial architecture (see this column in newsletter N° 9853).
The outcome of the discussions among heads of government, the positions adopted by some and the Commission initiatives lead one to a number of conclusions.
1. The spectre of intra-Community protectionism is receding. The main call from Central and Eastern European states, that the rules of the unified market be adhered to, has been satisfactorily answered. Czech Prime Minister, Mr Topolánek, who was vociferous on this point, has acknowledged as much. This happy outcome of the quarrel, which had previously threatened to boil over, is the logical one, because the proper working of the common market is vital to all. For the member states from Central and Eastern Europe, the figures speak volumes: their economies are deeply dependent on exports to the other Community countries and on the investment which comes from these same countries. But there is clear interdependence: Germany's economic momentum and financial stability are linked to its exports, for which the EU is by far the largest market. In France, one worker in four works for export. Furthermore, and above all, economic activities are so interwoven with the common market, particularly for by-products, that any interruption in trade flow is unthinkable.
Leaders all seem to have understood these realities, whatever the superficial reaction of public opinion at times. This case has to be deemed to be closed, with the addendum that it is the right and duty of the European institutions and Community procedures to monitor observance of common market rules and attached regulations, with priority on rules on fair competition.
2. Central and Eastern Europe is not a specific EU region. Options and proposals that could have hinted that this region's member states form a specific group have been rejected - first and foremost by these states themselves. I perhaps misunderstood what Hungarian Prime Minister Ferenc Gyurcsány meant when he spoke of a new iron curtain: it was this very risk that he intended to dispel when he suggested a specific fund for Central and Eastern European countries. He feared that current problems and difficulties could result in an economic and financial iron curtain which would once again divide Europe, as the political and ideological iron curtain once did.
His fear was not shared by Poland, the Czech Republic or other countries in this area, and the fund sought by Hungary received practically no support. Some older member states have problems of liquidity and indebtedness similar to those of more recent member states, while Poland and the Czech Republic are less in debt and Slovakia is protected by being part of the Euro. According to an Austrian bank with a large number of branches in the eastern countries, deposits in banks in Poland and the Czech Republic exceed loans granted; there is no shortage of liquidity.
The summit decided that each member state will be given aid according to its needs, with no geographical distinction that could give the impression of an EU cut in two.
3. The efficient use of available funding is the priority. When the possibility of a fund specifically for Central and Eastern European member states was mooted, several leaders and commentators pointed out that there were already various instruments in existence and that the main priority was to use them efficiently. In addition to the initiative by the EIB, EBRD and the World Bank (€24 billion made available to banks in this region), the Commission drew attention to budget support under EU regional policy; not loans but grants, and, in part, made available through a fast-track procedure. According to expert calculations, €30 billion could be made available to the Czech Republic from the various Community policies by 2013, Hungary could receive €28 billion and Romania €27 billion. But there is a twin problem: conditions have to be met for this money to be allocated, and then it has to be used effectively and efficiently. The old EU member states had to face the same problems. The majority overcame them for the most part, and progress in the regions that were lagging behind the others was rapid and radical. For others (notable, a number of regions in the south of Italy), this was not the case: waste and misappropriation of resources put an end to, or slowed, expected progress. A report by a large Eastern member state bank, quoted in the press, says that a large part of the resources available to the countries of the East are not used because potential beneficiaries either fail to fill in the forms correctly, or there is a lack of eligible projects, or local co-funding, which, in some cases, is compulsory, cannot be found.
4. The real problem of the car sector. The most visible and the most harmful point with regard to the car industry seems to have been settled to everyone's general satisfaction. Things blew up after Mr Sarkozy's unfortunate reference to French car manufacturers relocating to the Czech Republic and the strong reaction from the Czech prime minister. The French government (according to a European Commission press release) later made it clear that agreements with national manufacturers did not set any conditions on where their activities were located or on their seeking supplies first from French-based suppliers, and that manufacturers' freedom to adapt production to market development was guaranteed. The two main French car manufacturers undertook not to close any factories in France for five years in return for a €6 billion loan at 6% interest, and the Commission declared that this was not illegal state aid.
Mr Sarkozy pointed out that saving French firms was to the advantage of all the member states in which they were set up (Slovakia and the Czech Republic in particular) since it allowed them to continue their activities on the ground, and Mr Topolánek, speaking as President of the European Council, said that protectionist measures incompatible with common market rules did not exist and were not under consideration in any member states. This point, then, has to be seen as having been settled.
Discussion on the car industry continues, however, from another, more general, angle, raised by Swedish Prime Minister Fredrik Reinfeldt at the summit. European factories can produce 18 million cars, yet demand (including exports to third countries) does not exceed 11 or 12 million. The solution, according to Mr Reinfeldt, is not for member states to try to snatch jobs one from the another, through subsidies and incentives to buy: production capacity has to be reduced.
Statements of the like provoked predictable responses. Some spoke of the “steel plan” which, in its day, put European steel and iron making back on an even keel. Others responded by saying that Europe's drastic reduction in capacity, achieved at considerable cost, had meant that once the crisis was over, European steel makers could not meet the demand that had returned. This discussion will, no doubt, continue, given new car production capacities which are being developed or have been announced across the world.
5. Bad bank, or abandoned option. The possibility of setting up a bad bank for all the toxic assets, thereby lightening the load on the banks which currently hold them, has been abandoned without there having been the need for a political debate. It was clear (and some heads of government personally pointed it out) that the outcome of such an initiative would have been to nationalise the losses of the bankers who developed and issued theoretical assets which had no real substance, after drawing out billions for their own personal interests. Just as unfair would have been safeguarding the profits of credit institutions which accepted and spread derivatives containing the toxic assets without any clear indication that this was so, to the extent that it was practically impossible to check and evaluate the volatile components of these products. It would seem that no head of government and no other responsible authority picked up the idea of bad banks. Let the banks that used such practices begin by making clear the level of the toxic assets in their accounts, without ruling out the possibility of recovering at least part of the illegal profits that they produced.
Two related points. An overview based on the outcome of the informal summit and on Commission plans (of which the leaders of the Parliamentary groups were informed in detail by Mr Barroso himself on Thursday) would not be complete without a supplement devoted to two related points which have not been discussed in this week's official meetings: the tax chapter of the reforms, prepared or announced; and the re-establishment of a certain minimum level of optimism or at least calm. This will be for the start of next week. (F.R./transl.rt)