BusinessWeek: January 11, 1993

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 International Outlook

IT'S 1993--AND EUROPE CAN POP A FEW CORKS AFTER ALL

For years, the date Jan. 1, 1993, has been eagerly anticipated by Europeans. But its arrival finds many of them in too sour a mood to celebrate. Continentwide recession, combined with political jitters and a currency meltdown, has staggered the European Community in the final sprint to a single market. Confusion over rules and regulations is further detracting from the occasion. One busy Brussels attorney, Clive Stanbrook, says he is keeping his firm open round the clock during the first week of 1993 to deal with clients' crises. "Lawyers are going to earn huge fees," he says.

Despite all this grumbling a real revolution has taken place since the single-market drive began in 1985. As of Jan. 1, nearly all goods will flow across EC borders unimpeded. EC-wide product standards are being adopted. Value-added taxes have been brought closer in line.

Corporate Europe will never be the same, either. Companies have been forced to streamline vastly to survive. They have restructured and invested billions of dollars to operate on a European rather than on a national scale. This process has been aided by the lifting of controls on capital flows in order to facilitate cross-border mergers.

HODGEPODGE. Of course, idealists can find reason for disappointment. To save jobs, governments have been turning single-market regulations into a hodgepodge of postponements, exemptions, and exceptions. France and Italy have managed to hold on to protection for their brokerage houses until 1996. Germany's truckers have blocked foreign rivals from hauling between, say, Bonn and Berlin. And Britain's $700 million duty-free industry has made sure that fliers inside the EC can still stock up on cut-price liquor and cigarettes until at least 1999--even though the borders are supposedly gone.

While Brussels boasts that 94% of single-market directives have been passed, some of the toughest nuts remain intact. There has been no agreement on EC-wide articles of incorporation, trademarks, or corporate income tax. Europe seems to have given up on enacting uniform labor rules. While public procurement is supposed to be wide open after Jan. 1, many executives fear that some countries will continue to favor local suppliers.

ESCAPE HATCHES. As recession drags on, Europe's many shaky governments have little choice but to delay "reforms" that will mean more lost jobs en top of the hundreds of thousands that have vanished over the past few years. If the slump worsens, there is even a danger of backsliding. Some single-market laws, such as banking liberalization and product-safety standards, contain clauses that could be used to reimpose barriers. "If reform starts to hurt," says Karel Lannoo, a Brussels-based banking specialist, "there's a great potential to abuse these loopholes."

But a more likely outcome is a renewed push for deregulation once the business cycle turns up. For one thing, Europeans are very enthusiastic about the lower prices and wider choice of products and services that deregulation will bring. And it will only get better. With rare exceptions, there will no longer be any limit on the goods travelers can carry across EC borders.

Even big monopolies will continue to come under pressure to loosen their grip. Germany has already opened up its phone system enough to allow American competitors such as Pacific Telesis Group and Motorola Inc. into the market. Those steps have been taken reluctantly. But Europe can't afford to go back to protectionism if it wants its companies to be global competitors.

Edited by Stanley Reed Patrick Oster in Brussels, with Bill Javetski in Paris and Gail E. Schares in Bonn
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