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The Ec: From Here In, No Gain Without Pain


International Business: Commentary

THE EC: FROM HERE IN, NO GAIN WITHOUT PAIN

"Maastricht has been like getting married," says one prominent Italian economist, reflecting on the importance of the agreements reached in the Dutch town on Dec. 10. "Before the meeting, we were passionately in love with the concept of Europe. But now that we're married, the hard work of living together begins."

The metaphor may be a bit stretched. But far from the hoopla of Maastricht, Europeans are starting to wake up to what a unified Europe would really mean. To construct the economic and political powerhouse of 340 million people charted by Brussels, they are going to have to give up a lot more of their cozy habits. Despite the summit's upbeat note, a lot of doubt remains concerning Europe's seriousness about forging ahead. It will only die down if individual countries show a willingness to sacrifice for the greater good.

In the months to come, skeptics will be watching whether the Germans start to break up the clumsy Bundespost monopoly and give, say, a chunk to British Telecom. They'll see if Paris pulls the plug on state-controlled electronics giant Bull, which ran up $1.3 billion in losses last year. And they'll watch closely as the Italians, whose Europtimism is as strong as their economy's preparation for European integration is weak, face a world in which Milan will wither as a financial center.

GOLD STARS. So far the governments in Rome, Paris, and Bonn have played the pro-Europe card for all it's worth while being less than candid about the downside. That's because Europe has been swept by "1992 fever" since the 1986 decision to go for a unified market by next year. The EC flag with its 12 gold stars flies proudly at factories doomed to extinction by an integrated market. Thousands of workers bound to be laid off in the next few years are flocking to get European Community passports.

From here on out, there's going to be no gain without some pain somewhere in Europe. By one estimate, for example, the EC's 37 locomotive makers will be reduced to fewer than 10 within a decade. And the move to a single currency guarantees a shakeout in financial services.

PLANES, TOO? In the runup to 1992, the Europeans have clung to their old ways. Multibillion-dollar public procurement, which EC members all agree should be opened up, remains as tightly protected as the British crown jewels. Similarly, all support deregulation of air travel, but no country wants to be first to give up its own national airline. And just after agreeing to open up the Continent to more Japanese imports, Europe's embattled and long-protected carmakers are clamoring for a protectionist EC industrial policy.

In the long run, the tough transition to an open market should be worthwhile. If the Maastricht plan works, for instance, Europeans will have not only a common currency but also the world's strongest financial system. European banks and corporations, freed from the narrow confines of individual countries, may gain the competitive edge to hold their own against the U. S. and Japanese.

But that isn't stopping grass-roots opposition to an integrated Europe from spreading across the Continent. You can see it in the eyes of thousands of angry French and Italian farmers as they take to the streets to protest against subsidy cuts. In some cases, like France's extreme right-wing National Front, such protest is explicitly anti-Brussels. In others, such as Lega Lombarda, now the No. 2 political party in most of northern Italy, it's a rejection of free-market and pro-European ideals.

If such trends grow, fears France's European Affairs Minister Elisabeth Guigou, Europe could regress "and face a destructive Balkanization." Europeans would do well to ponder that as they roll up their sleeves for the next phase of integration.John Rossant


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