EU LEADERS said protectionism was no answer to the economic crisis yesterday as Paris and Prague settled a bitter dispute over €6 billion subsidies to the French car industry.
They also pledged to review the financial situation in eastern and central Europe as Hungary warned of the increasing danger of a “systematic meltdown” in the region.
“I’ve never believed in protectionism. Remember that this made the 1929 crisis dreadful. So it is a dirty word . . . I slam the door shut in the face of protectionism,” French president Nicolas Sarkozy said at the end of a three hour emergency summit in Brussels.
Mr Sarkozy’s effusive condemnation of protectionism followed a bitter war of words between himself and Czech president Mirek Topolanek in recent weeks over Paris’s planned €6 billion bail out of the French car industry.
The original French plan would have prevented firms such as Renault or Peugeot from accepting state aid if they planned to outsource jobs from France to cheaper locations in central and eastern Europe. But Mr Sarkozy reluctantly agreed to remove this “delocalisation clause” on Saturday to gain approval from the European Commission and prevent another row at the summit.
A short press statement published on behalf of all 27 EU leaders last night said they should: “Make the maximum possible use of the single market as the engine for recovery to support growth and job . . . [and] stress that protectionism is no answer to the current crisis and express confidence in the commission’s role as guardian of the treaty.”
European Commission president José Manuel Barroso said the EU was not against providing aid to the car industry but it had to be provided without distorting the EU single market. He said money should be made available if it encouraged reform of the sector by, for example, encouraging car manufacturers to produce low-emission or green vehicles. But he said there should be no return to the 1980s when the EU allowed wholesale subsidies to support the steel industry without forcing it to implement proper reforms.
Central and eastern European states such as the Czech Republic were concerned the French plan would unleash a raft of protectionist measures that would encourage old EU states to bail out their industries and try to stymie further outsourcing to the east.
“This summit must show that Europe must not be divided into new and old, southern and northern or eastern and western,” said Mr Topolanek as he arrived at the meeting.
But tensions between central and eastern Europe and the richer western EU states, which have been accentuated during the current crisis, are still bubbling under the surface. Nine new member states met prior to the EU summit in an attempt to co-ordinate their message: that the richer west must do more to help out the new EU members. Hungary, which has already been forced to go cap in hand to the International Monetary Fund and the EU for a bailout, proposed the EU set up a €190 billion financial rescue plan for the region.
“A major crisis in eastern Europe would have global systemic effects . . . a significant economic crisis in eastern Europe would trigger political tensions and immigration pressures (with a central and eastern European population of 350 million people, of which 100 million are in the EU),” said the Hungarian proposal seen by The Irish Times.
EU leaders rejected the proposal as too costly, noting that financial aid should only be offered to states on a case-by-case basis. Hungary was also criticised by many new member states, who feared the alarmist language in the proposal could frighten the markets.
A separate proposal from states in the region to loosen the criteria for membership of the euro zone was also dismissed by EU leaders, who are anxious not to weaken the currency. Instead, they pledged to review and monitor closely the financial situation in the region.
EU summit: what leaders agreed
* Financial assistance already available to EU states in central and eastern Europe will be reviewed.
* Support for parent banks in western Europe must not restrict actions of subsidiaries in central and eastern Europe, while plans will be drawn up to help states facing temporary imbalances in their economies.
* Protectionism is not the answer to the current economic crisis, it was stressed.
* It must be underlined that Europe can only face the economic crisis by acting together.
* It was recognised that unblocking the credit channel is crucial to economic recovery plans.
* The importance of dealing with impaired banking assets, while respecting EU competition rules, was underlined.
* It was agreed to invite the European Commission to monitor national state aid measures in the car sector to ensure it stays within EU rules.
* They said they would ensure that the EU’s efforts to restore financial stability were reflected internationally at the G20 meeting in London next month.
* A new effort to conclude the World Trade Organisation (WTO) deal must be made.
