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Getting Ready To Rumble Over Tighter Unity


International -- Int'l Business: EUROPE

GETTING READY TO RUMBLE OVER TIGHTER UNITY

Business loves the idea, but voters are growing skeptical

When the leaders of 15 European countries gather in Turin on Mar. 29 to start writing a blueprint for Europe in the next century, they will assemble in the Lingotto convention center, converted from a Fiat car factory. Built early in the century, Lingotto was once an industrial wonder where raw steel came in one end and finished cars rolled out the other.

It's a shame Europe is not that simple a proposition. The long-heralded Intergovernmental Conference (IGC) is supposed to streamline the European Union's ponderous decision-making process. But this procedural task, which will take months, is only part of the picture. From Rome to London, a popular backlash against tighter unity is gaining momentum. At the same time, businesses see greater unity as essential to corporate and regional prosperity. This clash will ultimately decide whether Europe becomes a world-class competitor or remains an inward-looking trade zone weakened by nationalist tensions.

CRITICISM. No wonder that Stuart E. Eizenstat, the outgoing U.S. ambassador to the EU, says that after Russia, the EU "faces the most serious challenge of any country or group of countries in the world." To start with, crucial national elections will occur in Italy, Britain, France, and Germany over the next 24 months. Voters may voice their opposition to such Euro-proposals as a single currency, which many now see as the cause of rising unemployment and fiscal tightening on the Continent. The Apr. 21 elections in Italy--where members of the center-right coalition have begun criticizing the EU for infringements on Italian sovereignty--could be a signal of which way the wind is blowing.

As popular support falls away, European business is rooting louder than ever for increased unification. On monetary union, about 8 out of 10 Germans may be opposed to trading in their solid Deutschemarks for Euros. But a survey of Germany's top 600 businesspeople by Allensbach Demoskopic Institute published in mid-February showed 77% support adoption of a single currency--up from 61% last June. "The only way we are going to compete with the Americans and the Asians is through more and more economic integration," says Jean F. de Jaegher, the Belgian managing director of Italian textile group Marzotto.

While Europe's economy is stagnating overall, deregulated sectors are doing relatively well. New areas are opening up, from private airlines that have begun breaking Alitalia's domestic monopoly to British Telecommunications PLC's efforts to penetrate Continental telecom markets. Even in areas where deregulation is incomplete or where multiple currencies pose an obstacle, businesses are pushing things forward. In financial services, Scottish Equitable, an Edinburgh insurer, is now selling shares in a Luxembourg-based investment trust to Italians. Businesses also want Brussels' help in attacking remaining protectionist habits. French bank Societe Generale, for example, has gone to an EU court to overturn a decision approving France's $27 billion bailout of state-owned rival Credit Lyonnais.

FINAL TOUCHES. Even the barriers in arms manufacturing--the most protected segment of European industry--are starting to break down. Spurred on by tough competition from U.S. defense groups, France moved recently to start consolidating its big arms groups such as Aerospatiale, Thomson, and Dassault. "Years of nationalism are breaking down now," says Enzo Benigni, CEO of electronic warfare group Elettronica of Rome. Benigni is putting the final touches on an agreement to sell a stake in Elettronica to France's Thomson.

But business is still often blocked by petty nationalisms. For example, companies want to operate in the EU without the costly obligation of setting up subsidiaries in each country. EU policymakers at the European Commission support a proposed statute eliminating this task, yet it may not be enacted. "It's not the commission that's a problem, it's the national governments that are protecting national interests," says Thomas Frankl, European government relations manager at Texas Instruments Europe. Local opposition to EU ideas may also imperil the IGC's initiatives, which need the approval of national parliaments before becoming law. If policymakers aren't careful, these divisive forces could eventually undo any good the IGC achieves.By John Rossant in Rome, with bureau reports


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