Summit charts path to ‘new economy’

Date: 30/03/2000

By Tim Jones

UNUSUALLY for a showpiece EU gathering, once the Oscars-night element is stripped out from last week's Lisbon 'dotcom summit', something of real substance remains.

Portuguese Prime Minister Antonio Guterres showed colleagues what they lost when he turned down the European Commission presidency, the UK's Tony Blair yet again led the millennial chorus praising the Internet he has only just learned how to surf and Germany's Gerhard Schröder's confidence on the international stage continued to grow.

But that was all froth, even in EU leaders' terms. For them, the summit was meant to be about how Europe can more effectively ride the 'new economy' tiger, optimise wealth creation and generate the maximum number of jobs.

Union leaders have set themselves the aim of creating at least 20 million jobs in a decade. But most of them have wised up to the fact that all their dreams of matching the US' job-creation and technology-harnessing record over the past eight years will remain just that unless they take practical steps.

Chief among these is dismantling local telephone monopolies - opening the 'local loop' to competition, to use the jargon - by the end of next year so that rival phone and cable operators can provide high-speed services directly to homes and install their equipment in the incumbent's local exchanges.

This will do more than any number of summits to drive down the cost of local calls - those used by Internet service providers (ISPs) and e-commerce entrepreneurs -ultimately to zero. This is no mere detail: a three-minute local call in the EU costs €39-cents compared with 11 cents in the US, according to the European Commission. Calls from the EU to the US cost more than €4 for ten minutes - twice the price paid by Uncle Luigi when he returns the call to the old country.

Only Germany, Finland, the Netherlands, Austria and Denmark have opened local networks to competition, while Italy and Sweden plan to do so by December. France, Spain and the UK bring up the rear, although London has long been committed to ending BT's local monopoly in July 2001.

It was for this very reason that Blair, the champion of economic liberalisation in Europe, toned down a commitment in Guterres' original summit conclusions to opening up the local loop by the end of this year. If he had not, however, France's Lionel Jospin or Spain's José Maria Aznar would have done it for him.

The language was diluted to a commitment to "work toward introducing greater competition in local access networks before the end of 2000" which, in summit-speak, means nothing will happen until the end of 2001.

Nevertheless, on the ground, things will move much more quickly. BT, for example, will hang onto its local monopoly for another year but Internet dial-ups for anyone using BT or its rivals NTL, AltaVista or Freeserve will be unmetered by this summer.

Schröder's right-hand man, Klaus Gretschmann, announced in Lisbon that his boss was talking to German ISPs to arm-twist them into offering the same service and France Télécom is going to find NTL's British offering increasingly embarrassing, given that it holds a 25% stake in what everyone insists on calling an "American company".

Conclusions calling on national negotiators to agree pending Union-wide legislation establishing a legal framework for e-commerce, copyright, e-money and the distance-selling of financial services are likely to be as effective as the invocations from the past 15 summits to strike a deal on energy taxation. Negotiators will agree when they agree, and not before that.

The same effort will not go into driving down 'old economy' prices. Guterres' proposed deadline for a complete opening-up of the energy and rail markets by 2003 was scrapped after intense opposition from the French government. Given the events of just two days before the summit began, Jospin's refusal to give way was hardly a surprise.

The French premier, under intense pressure from public-sector unions, went over the head of his "mortified" Finance Minister Christian Sautter and shelved long-overdue reforms of the tax-collection and assessment services. A week later, Jospin accepted Sautter's resignation and replaced him with former Premier Laurent Fabius.

Even as Jospin was signing up to an EU-wide reassessment of pay-as-you-go pension systems at a time when the population is greying at an alarming pace, the putative presidential candidate was announcing that his government would stick with the current national system but underwrite future liabilities with a special fund by 2020.

Perversely, Jospin's refusal to countenance an early end to the smaller-customer monopolies of Electricité de France (EDF), Gaz de France and La Poste or to allow rail operators to compete with SNCF on an equal footing is likely to make life more difficult for these companies.

EDF, in particular, is desperate to expand further in Germany and the UK but is facing intensified opposition while no reciprocity exists for British and German utilities. The company is also under investigation by the Commission for possible cross-subsidies although, given the experience of equivalent inquiries, French power will be fully liberalised by the time the probe reaches a conclusion.

This generation of EU leaders has a great advantage over its predecessors during the last round of economic reform negotiations in 1992-93. This time around, they are talking against a backdrop of serious gross domestic product growth - 3%-plus for the first time since 1990.

Schröder and Jospin, for some reason beyond the understanding of many of their EU colleagues, wanted to turn this forecast into a target but were talked out of it. Instead, summiteers agreed that it would be a "realistic prospect" if old industries were overhauled and new ones harvested in line with the Lisbon blueprint.

The most ironic element of all is the admission by several premiers - including, most notably, Schröder - that Europe's dream of a 'new economy' will not come true without targeted immigration of high-technology specialists from the developing world.

Schröder, who is locked in a political battle over plans to bring as many as 20,000 Indian computer specialists into Germany, has recognised that a large part of the Silicon Valley and Seattle miracle was built by non-American personnel.

But a question mark remains over whether the rest of the Union will recognise that this next industrial revolution - like the building of the US railroads by Chinese and Irish labour - will need an influx of non-EU skill.

Major analysis of European Council, Lisbon, 23-24.3.00.