Charlemagne: The nationalist resurgence

Why the forces of economic nationalism seem weaker than those of globalisation

THE merger will liberalise share ownership and create one of the biggest companies in the world, said the minister. "I have a vision of transforming it into a vast, diversified energy giant encompassing not just gas but oil and electricity." Oh, sorry, that was not Dominique de Villepin, France's prime minister, announcing that the marriage had been arranged and would take place between Gaz de France and Suez, two big French energy firms. It was Alexei Miller, boss of Gazprom, describing his company's takeover of a Russian state-owned oil firm last year.

There are indeed some uncomfortable similarities between the European Union's mood just now and Russia's state-directed capitalism. The French government seems to favour a sort of Gallic Gazprom, that well-connected and politically influential behemoth. France, Italy and Luxembourg have little lists of national champions they think should be immune from foreign ownership. The Spanish government prefers a home-grown energy champion to seeing a local firm fall into the hands of a German utility. And so on ()see page 69.

Behind this lurks the explicit view that the nationality of ownership matters; and the implicit one that foreign firms could become agents of foreign governments (a suspicion for which there is almost no empirical evidence). Thus the merger of two French or two Spanish energy firms is acceptable, but a takeover of a French or Spanish firm by a German one is not.

Whether or not this contradicts the law of the European single market, it certainly contradicts the spirit of the European Union, as several commissioners have been pointing out. The EU embodies the notion that countries are better off when they share sovereignty and that, in certain areas--the single market pre-eminent among them--nationality should not matter. Arguably, that would be true even if the EU did not exist: in a world of global capital, ownership becomes diffuse and fuzzy in any case. But the EU does exist; and that makes the notion of defending national champions against European partners as quixotic as saying that a yogurt-maker is a strategic asset in the first place.

Yet official behaviour is only part of this story, and perhaps it is the less important part. Today's hysteria about cross-border mergers is in some ways the opposite of what happened 25 years ago. In the 1980s, the impetus behind the creation of the single market came from liberalising governments; most of the opposition came from companies fearful of being exposed to more competition. Now, argues Ernest-Antoine Seilliere, head of UNICE, the European employers' association, opposition to liberalisation comes mainly from governments and unions, while the impetus for change comes from companies.

Europe is experiencing a wave of mergers, the largest since the dotcom boom of 2000. Unlike previous waves, this one is not just national; it floods across borders. In 2005 the value of cross-border mergers in the EU was the highest since 1999-2000; in the first two months of this year, cross-border deals have for the first time ever accounted for over half of all European mergers by value. Mergers can be wise or foolish, competitive or anti-competitive, of course. But at least they are usually business decisions, not political ones. They have more to do with corporate restructuring and the single market than with the creation of European or national champions.

So while it is true that Europe is flirting with economic nationalism, it is not the whole truth. It would be more accurate to say that, as in Russia, a battle is engaged between two opposing forces: protectionism and economic nationalism on one side, business restructuring and globalisation on the other. The two inevitably clash. The protectionist instinct is growing and could get stronger: France's anti-competitive actions are provoking other countries to retaliate, risking a downward spiral. But in general the market-opening activities of companies look more powerful than the market-closing instincts of governments.

Opening up

This is partly because those market-closing instincts are neither uniform nor all that strong. Despite backsliding on trade (most recently a curious attempt to defend Europe's downtrodden shoemakers against competition from that economic powerhouse, Vietnam), the European Commission is relatively liberal--if only because most of its authority comes from policing the single market. Economic nationalists reside in national capitals, as you would expect. And even there, protectionism is a squib, not a constant ray. Governments are in theory committed to market liberalisation and they know that autarkic nationalism would be toxic: they swallow it in small doses out of short-term political expediency or to curry favour with unions.

In contrast, the forces driving companies to go global are relentless and all-embracing. Across Europe, the past few lean years have forced companies to cut costs, restructure their balance sheets, reduce debt and boost profits. Interest rates are still low, adding to the attractions of mergers financed by debt. These pressures will not ease. The need for capital and new markets is pushing companies across borders faster than governments can put up obstacles to them.

In other words, companies will take advantage of the single market wherever they can. The question is whether governments can impede them. The recent case of Germany is instructive. In the face of high wages, inflexible labour laws and declining competitiveness, the German government's efforts at reform were fitful and half-hearted. But German companies restructured, cut costs, reorganised and laid off workers. Competitiveness and business confidence have rebounded. But the cost of relying on companies alone to reform is persistently high unemployment. The moral is that Europe's nationalists cannot reverse or perhaps even much affect the market-opening actions of their companies. But they may increase its cost.

Commentary feature says that the forces of economic nationalism in Europe seems weaker than those of globalisation

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