Growth in protectionism begins to strain relations between EU countries

Common interest is forgotten as member states protect their own

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By Annamari Sipilä
     
      The protection of the products of a country by the government of that country at the expense of the production of other countries has become the newest bogeyman in the European Union.
      The danger of protectionism was felt strongly at a meeting of ministers of finance of the EU countries last Tuesday.
      “The development of protectionism is being followed very closely”, says Finnish Minister of Finance Jyrki Katainen (Nat. Coalition Party).
      The Czech Republic, the current holder of the EU Presidency, warned about the same threat on Tuesday.
     
Czech Minister of Finance Miroslav Kalousek said at a press conference last Tuesday that the long-term risks of protectionism are much greater than those of a short-term slump.
      The Czech Republic plans to organise an extraordinary economic summit before the end of February.
      According to Kalousek, the meeting will focus specifically on protectionism. He hopes that the national leaders will undergo a change in attitude and commit themselves to fighting protectionism.
     
For instance, France’s support to the country’s car industry has angered the Czech Republic, Slovakia, and the next EU presidency-holder Sweden.
      It was reported earlier in the week that French President Nicolas Sarkozy had called for moving the manufacture of French cars from the Czech Republic and Slovakia to France.
      Sweden, meanwhile, is angered at the EUR 6 billion in loans that France has granted its car-makers, fearing that the move might hurt the competitiveness of Swedish cars.
      The European Commission plans to investigate the legality of the French support package.
     
The atmosphere has already begun to grow more tense, as member states keep jealous watch over each other’s actions. Speaking in Prague, Czech Prime Minister Mirek Topolánek accused the Euro countries of violating rules that had been jointly agreed upon.
      British Chancellor of the Exchequer Alistair Darling pointed out, however, that it is quite possible - and even something to be hoped for - that the member states should support their own economies.
      However, he said in Brussels that the matters must be decided together, as all countries need their neighbours more than ever before.
     
The strengthening of protectionism also makes it more difficult to deal with the banking crisis.
      That is why the establishment fo a European bank for dealing with problem loans is not feasible. If such a “junk bank” were set up, greedy member states would do all they can to get the non-performing property of their own banks paid off by the others.
      The EU ministers were in agreement that European competitiveness must not be distorted as banks are rescued. The interests of healthy banks and taxpayers also need to be monitored.
     
The European Commissioner of Finance Joaquin Almunia promised some kind of instructions on valueing banks in a couple of weeks’ time.
      After that, each member state can decide independently whether or not to rescue its own banks with guarantees, capital injections, or national junk banks.
     
Finance Minister Katainen says that there is no time to be lost in drawing up common rules for the game. At a meeting of EU ministers on Tuesday, it was repeatedly noted that the “goal is moving all the time”.
      “This means that even a good bank can be in trouble soon”, Katainen said.
      Finnish banks are not known to have very large numbers of non-performing loans to deal with.
      “But when the economic doldrums are drawn out, payment problems will also increase, which is a burden on banks”, Katainen warned.
     
Helsingin Sanomat / First published in print 11.2.2009

More on this subject:
 Finnish export industry will suffer if all countries start favouring their own

ANNAMARI SIPILÄ / Helsingin Sanomat
annamari.sipila@hs.fi