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EU: Bloc Tackles Thorny Issue Of Globalization

Jose Manuel Barroso (file photo) (epa) British Prime Minister Tony Blair is hosting an informal summit of the 25 European Union leaders today, at which he will try to win agreement on how the EU is to adapt, socially and economically, to globalization. Blair is an enthusiastic supporter of economic liberalization as the answer to staying competitive with emerging giants like China and India. But some of his Continental partners, pressured by reluctant electorates, are not keen to travel far down that road. RFE/RL correspondents Breffni O'Rourke and Ahto Lobjakas report.

Prague, 27 October 2005 (RFE/RL) -- Tony Blair has a simple target: to prepare the EU for the global challenges which he believes the bloc must unavoidably address.

To do this, the British prime minister wants the summit to agree in principle to a package of measures suggested by European Commission President Jose Manuel Barroso for coping with the new, globalized world economy.

In a speech before the European Parliament in Strasbourg yesterday, Blair summed up the main points of the analysis laid out by Barroso.

"It is, I have to say, a stark analysis, but it's the right analysis," Blair said. "It shows just how great a competitive challenge we have from the emerging economies such as China and India, never mind the United States and others. It shows how important it is we deal with the almost 20 million unemployed in the European Union. It shows how we must make our labor markets less restrictive; how we have to make sure that in research and development, innovation, and other areas, we catch up with the best practice in the world."

Barroso said the status quo is not an option for Europe, given the "extraordinary" speed with which globalization is happening. At the European Parliament yesterday, the commission president appealed to Blair's Continental detractors, such as France and Germany, to embrace economic reforms.

Paris and Berlin, among others, argue that economic liberalization puts at risk the standard of living and social guarantees enjoyed by their citizens as a matter of right. Barroso said such values will become unsustainable without reform.

"Only one thing is certain: the status quo is not an option," he said. "There is an urgency about reforms and modernization in Europe. If we want to keep our European values, we must modernize our policies."

Barroso's recommendations include setting up a multibillion-euro transition fund which would help those citizens who lose their jobs because of globalization. It would pay for retraining, help lower taxes on labor, and provide better child care to enable more women to work.

These are mostly relatively minor, uncontroversial steps. But even so, diplomats say they are likely to provoke arguments at the summit, with big net contributors like Germany and the Netherlands questioning where the extra billions will come from.

France also fears Barroso's initial steps are harbingers of greater reforms to come -- among them cuts in the EU's farm budget. Farm costs account for more than 40 percent of the EU's common expenditure, and France is their principal beneficiary.

France and Germany together also oppose any quick opening of the EU's services markets. Barroso and Blair both support the EU's new member states, who demand access to the services markets of old member states, arguing it should be a benefit of membership.

However, Paris, Berlin, and a number of other countries fear an influx of cheap labor which would undermine their wages and living standards.

Analysts warn, in any event, that meeting the challenge of globalization is going to require much more than the plans outlined yesterday by Blair and Barroso.

Adrian Ottnad, a senior economist with the Institute for Economy and Society in Bonn, Germany, told RFE/RL that the pressure of globalization on high-wage, high-benefits Europe is growing enormous. "I doubt that we are able to withstand the pressure by improving our qualitative competitiveness and our price competitiveness," he said. "These are only elements, but in the end there is a competition between our highly developed social security system -- which costs a lot of taxes and contributions to the social welfare state -- on the one hand, and societies like China which have a very undeveloped social security system and which have only to pay very low taxes."

Ottnad said he is skeptical that the present standard of living in Europe, which he calls a "singular" phenomenon in world history, can be maintained. Using Germany as an example, he said that in the decades following World War II, people's incomes have risen very steeply. This was done by increasing labor productivity by two means -- one, by increasing knowledge and innovation, and two, by increasing the capital intensity of jobs:

"But capital is something that is international, and it goes to where the margins, the profit, is high, so these days it may be more profitable for capital to go to China than to Europe. So this way of increasing our productivity via this method is now very difficult to achieve," Ottnad said.

He said he expects two tough decades for the mature economies of Western Europe before the world economic system reaches a new equilibrium. And he says he expects it will be a tense time internationally, with the potential for bitter trade rows.

Another analyst, Paola Subpachi of the Royal Institute for International Affairs in London, suggests that it's pointless to try and preserve the EU's present status quo, which she says may offer high job protection for those in work, but does not help those without jobs, especially young people.

Subpachi also said the European Commission has been defending the status quo with dubious logic. She cited the case of the EU's row with China this year about the flood of cheap Chinese textile imports. For fear that European textile jobs would be lost, Trade Commissioner Peter Mandelson reimposed quotas on Chinese clothing which had been lifted under trade liberalization in January.

But Subpachi noted that textile jobs in Europe are comparatively few in number, and most of them are at the high end of the market -- for instance, the Italian fashion industry -- and would not be affected by the import of cheap Chinese T-shirts. And she said even if there are job losses, the greater good of the population must be considered.

"Very few people thought about the rest of the story, which is that cheap imports from China help a lot of consumers in Europe have a better standard of living, because the cost of a lot of [textile] goods came down remarkably," she said. In any event, she said, Europe -- as an industrially advanced area -- should be looking at higher goals than T-shirts, and should pursue innovation.

French President Jacques Chirac said yesterday that France is proposing to mobilize the European Investment Bank to provide 10 billion euros ($12 billion) for EU research and innovation projects by 2013.