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Political Economy: E.U. Market Needs to Be Opened Up More

July 28, 2013 by

The European Union is ripe for a big, new single-market push. Deepening the single market would do a lot for the Union’s sagging competitiveness. Vested interests may be opposed. But a drive to open up markets would help the euro zone periphery and could keep Britain in the Union, killing two birds with one stone.

It may seem odd to be calling for more work on the single market. Did the Treaty of Rome not promise the freedom of movement of goods and services throughout what is now the European Union all the way back in 1957? Did the Union not complete the single market in 1992? And was not a directive pledging free trade in services passed in 2006?

Well, yes and no. Free trade is not just about lifting intra-E.U. tariffs which were, indeed, abolished decades ago. It is also about dealing with a mass of national red tape, which protects local industries from competition. Such rules are especially prevalent in services industries.

That is why the job of freeing up the Union’s internal market is still far from complete. Even the services directive covered only sectors that account for a bit more than 40 percent of gross domestic product. Areas like energy, transport and telecommunications were left out. The legislation was also diluted so that even companies operating in the areas supposedly covered often have to go through lots of hoops to provide services in other countries. What is more, the rules are often not enforced.

Services account for 70 percent of E.U. G.D.P., but only 22 percent to 23 percent of intra-E.U. trade. The Union is also notoriously inefficient in provisions for services. This is a big reason the region is poorer than the United States.

Liberalizing services would encourage competition. That would push prices down, benefiting ordinary consumers, enhancing the competitiveness of businesses and saving money for hard-pressed governments. Innovation, investment and jobs would rise. An ambitious liberalization would increase G.D.P. as much as 2.3 percent, equivalent to €294 billion, or about $390 billion, according to the research organization Open Europe.

There should be two priorities for a new single market push. First, services companies should be given a “passport” to operate anywhere in the Union provided they are properly authorized at home. This idea, advocated by Open Europe, would get rid of thousands of barriers in one fell swoop.

Meanwhile, a passport would mean there would be less need to rely on the European Commission to make sure national governments were properly enforcing detailed rules.

The provision of cross-border online services, vital for the future but currently tangled in a mass of regulation, would also get a fillip.

The second priority should be to extend the services directive to areas it does not cover — mainly energy, transport and telecommunications. These networks are the economy’s arteries and nervous systems. But it is absurd, for example, that a company carrying goods by road from Spain to Belgium is not allowed to pick up freight in France on the way.

Vested interests, especially in traditionally illiberal France and conservative Germany, will not like liberalization. Some French will argue that national rules are needed to protect consumers from poor-quality services from abroad, even though their companies happily provide electricity, public transport and waste management in liberal Britain. Some Germans will say their apprentice system ensures that youngsters are trained to become masters of crafts like plumbing and work with electricity, keeping quality high.

The counterargument is that consumers benefit hugely from choice. Not everybody wants, or can afford, the plumbing equivalent of a BMW. If Germans really provide better-quality services, they should be able to sell them as an upmarket product in other countries. But why should local consumers not be able to use low-cost Polish plumbers, for instance, if they prefer?

Competition between different ways of providing the same service would invigorate the E.U. economy. Of course, consumers would need to be protected. But that could best be achieved by being transparent about where the service provider is based and swift remedies for shoddy service.

If these economic arguments do not bite, a couple of political points could sway the day.

First, peripheral euro countries are being forced to open their markets as a condition of their rescue packages. Germany has been the high priest, preaching the virtue of enhanced competitiveness. How fair then is it to keep its own markets closed? Liberalization would encourage Germans to spend more money on services — something which would help drag the periphery out of recession, not to mention helping East Europeans catch up with their Western cousins.

The second political argument concerns Britain. It has one foot out the door of the Union. But it has long been a champion of the single market and excels at services. An ambitious program to deepen the single market could, therefore, be used as a powerful argument for staying in during a future referendum. Given that Germany does not want Britain to quit, this would be a way of achieving its goal without giving Britain any special treatment.

The original 1992 program was pushed through by a British single-market commissioner, Lord Cockfield, backed by a British prime minister, Margaret Thatcher. David Cameron should attempt to repeat the trick. He should aim to get another vigorous Briton in as single market commissioner when a new commission is chosen next year. And he should secure agreement from fellow leaders to set a deadline — say, the end of 2019 — to complete the single market.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/07/29/business/global/eu-market-needs-to-be-opened-up-more.html?partner=rss&emc=rss

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Vodafone Writes Down Units in Spain and Italy

November 13, 2012 by Leave a Comment

BERLIN — Vodafone on Tuesday wrote down the value of its network businesses in Spain and Italy by £5.9 billion as the British carrier struggled to weather southern Europe’s economic downturn.

The nearly $9.3 billion charge pushed Vodafone, based in Newbury, England, to a £1.9 billion loss in the six months through Sept. 30 after a £6.6 billion profit a year earlier.

The Vodafone chief executive, Vittorio Colao, blamed southern Europe’s economic woes, which has led to rising unemployment and economic stagnation in Spain and Italy, where Vodafone owns the No. 2 carriers behind Telefónica and Telecom Italia Mobile.

“Our results reflect tough market conditions, mainly in southern Europe,” Mr. Colao said.

He reiterated, however, that the company’s strategy remains one of cost-cutting and investing in faster networks to increase the sale of wireless data and offset other declines.

Vodafone, the largest telecom in Europe by market capitalization, saw its shares in London fall by as much as 4.5 percent to 159.1 pence on Tuesday afternoon.

In the six months through September, Vodafone said its total revenue fell 7.4 percent to £21.8 billion from £23.5 billion a year earlier. In southern Europe, the declines were twice as steep, with revenue falling 18.1 percent to just under £5 billion.

Revenue fell by 18.4 percent in Italy and 19.3 percent in Spain, Vodafone said. About half of the declines stemmed from the weakening of the euro against the pound, which eroded the value of Vodafone’s earnings in the single-currency bloc.

The British operator also faltered in Germany, Vodafone’s largest single market in Europe, where revenue from voice service and text messaging, its traditional source of earnings, is being increasingly eroded by free Internet-based mobile calling and smartphone message applications.

In Germany, where the company and T-Mobile are roughly equal as market leaders, revenue fell 6.5 percent to £3.9 billion.

“Germany experienced a sharp slowdown in revenue momentum as well as pressure on margins,” Jerry Dellis, an analyst in London at Jefferies International, a securities and investment bank, wrote in a note to clients.

Massive writedowns are no stranger to Vodafone, which rose to global prominence in the late 1990s through a series of aggressive mergers and acquisitions in Europe and Asia, and the purchase of a 45 percent stake in Verizon Wireless, the largest U.S. wireless carrier.

But the company has periodically overreached during its evolution, and economic downturns set off large accounting corrections to the value of its business. Twelve years ago, Vodafone wrote down the value of its business by the equivalent of $6.5 billion.

Mr. Colao, the son of an Italian carabinieri officer who took over as chief executive in 2008, has streamlined Vodafone, selling stakes in operators in France, Poland, Japan, Sweden and China. In January, he was able to coax from Verizon the first dividend payment for the Verizon Wireless venture since 2005, a windfall worth £2.9 billion to Vodafone.

On Tuesday, Mr. Colao said Vodafone would receive a further £2.4 billion dividend from Verizon Wireless before the end of this year.

Philip Kendall, an analyst at Strategy Analytics in London, said that Vodafone was faring no worse than other operators in weathering the downturn of southern Europe.

“As the No. 2 player in Spain and Italy, we feel Vodafone is holding its own quite well,” Mr. Kendall said. “I’m not suggesting all is good at those operations, just that most operators in those markets are hurting and it would be a little short-termist to get out now.”

Vodafone has explored opportunities to consolidate its operations in the region, and in February called off a merger of its Greek carrier with that of a rival, Wind Hellas. But the company is unlikely to leave the region, Mr. Kendall said.

“We wouldn’t expect major changes at Vodafone,” Mr. Kendall said. “They’ll be exploring opportunities for consolidation, and options for cutting costs, but are unlikely to be considering an exit.”

Article source: http://www.nytimes.com/2012/11/14/technology/vodafone-writes-down-units-in-spain-and-italy.html?partner=rss&emc=rss

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Italy’s Premier, Monti, Offers Plan in Euro Crisis

November 18, 2011 by Leave a Comment

At a time of international financial instability that is threatening the euro currency, and with the eyes of world markets on Italy, Mr. Monti, an economist and former European Commission member, said his government would work to change Italy’s labor market and pension system, fight tax evasion and make it easier for businesses to grow. But he also urged Europe to understand what is at stake if it leaves Italy to its own fate.

“The future of the euro depends on what Italy does in the next few weeks. Partly, not only, but partly,” Mr. Monti said, warning that “the end of the euro would unravel the single market, its rules, its institutions, and would take us back to where we were in the 1950s.”

At the same time, he urged lawmakers to back his “government of national commitment.” The Senate and the lower house were expected to give his government a vote of confidence later.

Mr. Monti said in no uncertain terms that Italy was in economic difficulty and needed to act fast to strengthen its own finances and by extension shore up the euro. It was a marked change from the tenor of the previous government, under Prime Minister Silvio Berlusconi, in which acknowledgment of Italy’s economic woes was considered disloyalty, and where as recently as two weeks ago Mr. Berlusconi said that Italy was a wealthy country where “restaurants are full of people.”

By contrast, Mr. Monti said Italians could expect to make sacrifices in the months ahead, but pledged that those sacrifices would be fair, and evenly spread. Such measures would involve changes to the labor market and welfare benefits, and to Italy’s lopsided pension and fiscal systems.

Addressing what he called a fundamental cause of Italy’s low growth, he said the government would work to grant young people and women greater access to the workplace. “They are the two great wasted resources of the country,” he said.

He said the government would work to restore market confidence in Italy in the short term and to invest in structural changes that would help in the longer term, including changes to what he called Italy’s “inequitable” pension system.

“We need to focus on three pillars: fiscal rigor, economic growth and social fairness,” Mr. Monti said.

To spur growth, he said Italy must deregulate closed professional guilds, opening them to competition, as well as improve the efficiency of public sector services.

Striking a statesmanlike tone, Mr. Monti also said that because citizens were being asked to sacrifice, cuts to the costs of elected officials as well as public administration would be “unavoidable.”

He also indicated that to bring Italy more in line with European norms, his government would probably have to reintroduce a property tax on first homes, a tax that had been scrapped by Mr. Berlusconi’s government.

Mr. Monti also pledged to fight Italy’s vast underground economy, which he said was estimated to be worth a fifth of the annual gross domestic product, and to tackle tax evasion, a task that he said would lead to the reduction of fiscal pressure on businesses and fixed-income employees and pensioners.

Mr. Monti did not try to sanitize the challenges facing Italy. Growth has lagged for a decade, he said, youth unemployment is higher than in other European countries, and the disparity between the wealthier north and the poorer south has narrowed only slightly.

Markets have been hammering Italy in recent weeks, driving up borrowing costs to levels that have caused other euro zone countries to seek bailouts, on concerns about Italy’s longer-term ability to repay its enormous debts.

Mr. Berlusconi was forced to resign on Sunday when it became clear last week that international investors had lost confidence in his government’s ability to push through reforms demanded by the European Union. Mr. Monti was recruited to replace him in record time, and on Wednesday, President Giorgio Napolitano swore in the new government, which consists mostly of academics, bankers and top-level civil servants, all experts in their fields.

Commentators in Italy welcomed Mr. Monti’s speech.

“He gave a political framework,” said Stefano Folli, a political commentator for the daily business newspaper Il Sole 24 Ore.

Mr. Folli said Mr. Monti’s message was that “Italians will have to make fairly serious sacrifices, but that those will be compensated for by a government that wants to restore a sense of the state and trust in institutions.”

While respected abroad, the Monti government is more problematic internally, where many factions in Parliament, most notably the one led by Mr. Berlusconi, speak of it as an imposition born of financial markets more than democratic processes.

In his speech, Mr. Monti reiterated that his government had not subverted the role of politics. Instead, he said that he hoped its apolitical nature would help Parliament regain a measure of concord after a particularly tumultuous period and “reconcile citizens and institutions to politics.”

Article source: http://www.nytimes.com/2011/11/18/world/europe/confronting-economic-emergency-new-leader-in-italy-mario-monti-offers-ambitious-plan.html?partner=rss&emc=rss

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Lawmakers to Consider E.U.-Wide Consumer Code

October 10, 2011 by Leave a Comment

BERLIN — The European Commission will introduce a proposal Tuesday to streamline consumer sales rules and protections across the 27-nation bloc, which supporters say could generate €26 billion a year in new cross-border sales.

The commissioner who will make the proposal, Viviane Reding, said a common sales law would eliminate buyer uncertainty and unnecessary legal costs for merchants, who typically spend €10,000 or more to adapt their sales contracts to each E.U. country’s national laws.

The guidelines would be optional. Both the consumer and the merchant would have to choose to make the transaction under the code instead of a country’s existing rules.

“The optional Common European Sales Law will help kick-start the single market, Europe’s engine for economic growth,” Mrs. Reding said in a statement provided by her office. “It will provide firms with an easy and cheap way to expand their business to new markets in Europe while giving consumers better deals and a high level of protection.”

The proposal, which requires approval from the European Parliament and Council of Ministers, has generated controversy in Brussels, where a coalition of national consumer groups and legal societies, which advise businesses and consumers on the vagaries of national laws, has formed to block the proposal.

Ursula Pachl, the deputy director general of the European Consumers’ Organization, a group in Brussels representing national and local consumer associations, said an optional sales contract could undermine pro-consumer legal regimes that are already in place in much of Scandinavia and in countries like Britain and Portugal.

Ms. Pachl, who is an E.U. contract lawyer, said her organization was concerned that the proposed protections would be watered down in the legislative process, even excising the provision that allows consumers to opt out of the contract.

“Businesses will be discouraged from using the new, tougher, stringent requirements because of extra costs,” to adapt to the new regulations, Ms. Pachl said during an interview. “The protections will never reach out to consumers because businesses won’t choose to apply it. To make it attractive to businesses, they will lower the standard and undercut existing consumer rights.”

The harmonized sales contract would be available to European businesses and also to merchants from the United States and elsewhere doing business with E.U. customers.

The proposal has attracted an array of supporters, including large European companies like Nokia, and groups like Britain’s Federation of Small Businesses. On June 8, the European Parliament voted 521 to 145, with eight abstentions, in favor of a nonbinding resolution supporting an optional, E.U.-wide contract regime. Poland, which holds the E.U.’s revolving presidency through December, has made the proposal one of its priorities.

Mrs. Reding plans to present her proposal, the details of which were obtained by the International Herald Tribune, on Tuesday after the measure has been translated into the Union’s 23 official languages. She will also present the results of a commission survey suggesting that 73 percent of E.U. businesses are willing to use a common sales contract.

Consumer contract laws in the European Union differ from country to country, with individual members applying their own rules to issues like product returns, refunds and exchanges.

Those differences, and the costs of overcoming them, have limited cross-border trade primarily to multinational companies with the legal staffs to negotiate the maze, Mrs. Reding has argued.

In Europe last year, three million consumers attempted to buy products in the Union but were refused because merchants were unwilling to sell outside of their domestic markets, the commission said. In the commission survey, two-thirds of consumers said they avoided cross-border purchases because they believed foreign laws were too weak. In 2010, only 9.3 percent of E.U. businesses sold products across the internal borders of the bloc, the commission said.

Article source: http://feeds.nytimes.com/click.phdo?i=8a7ee9a0f6ed5f5ecb9e5abd31bcd6f5

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Trichet Urges Creation of Euro Oversight Panel

June 3, 2011 by Leave a Comment

The creation of such an entity would require a change in the European Union treaty, and there would certainly be a lengthy debate.

But Chancellor Angela Merkel of Germany said on Thursday in Singapore that members of the euro area needed to work together more closely, perhaps indicating an openness to the idea.

As the debt crisis has strained European relations over the last couple of years, many economists have suggested that Europe must move beyond its unusual structure or else the union could risk being torn apart. The current structure, allowing each country a great deal of fiscal autonomy, will lead to future crises like the one now enveloping Greece, Ireland and Portugal, they contend.

Mr. Trichet has also been urging European political leaders to make a “quantum leap” in the way that the euro area is governed and expressed disappointment that they have not gone further. On Thursday, he was more specific.

“Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?” Mr. Trichet asked in Aachen, Germany, where he accepted a prize named for Charlemagne, who united much of Continental Europe.

A European finance ministry would not necessarily oversee a large budget, he said, but would be responsible for monitoring national finances and intervening in extreme cases. The ministry would also monitor whether countries were pursuing the right policies to be competitive, and oversee the European financial sector.

Mr. Trichet’s proposal may reflect frustration that the central bank has often had to take the lead in coping with Greece’s problems, including buying Greek government debt on the open market and becoming the country’s biggest creditor. With a central finance ministry, the European Union could step into a bigger role in the future.

Officials are now wrestling over terms of a second aid package for Greece. Greek government officials and visiting representatives from the European Central Bank, European Union and International Monetary Fund are considering additional austerity measures that would include a faster sale of state assets, tax increases and cuts to public-sector spending.

So far, Mr. Trichet has refused to consider allowing Greece to restructure its debt, but other members of the central bank’s governing council seemed to entertain the possibility on Thursday that owners of Greek bonds might someday contribute to a solution.

“We have never refused every form of private-sector involvement in Greece,” Vitor Constâncio, the vice president of the European Central Bank, said in Aachen, according to Reuters.

As he enters the final months of his term as central bank president, Mr. Trichet is stepping up the pressure for permanent changes to the way the union operates.

In a speech that quoted thinkers like Kant and William Penn, Mr. Trichet said that countries in trouble should first receive financial support and help getting back on their feet.

“It is appropriate to give countries an opportunity to put the situation right themselves and to restore stability,” he said, according to a text of his remarks.

“But if a country is still not delivering,” he added, “I think all would agree that the second stage has to be different.”

In that case, European Union leaders should have more authority over the actions of other members, he said. For example, they might be given veto power over spending by a troubled country or its economic policies.

Late Wednesday, the Greek Finance Ministry expressed irritation at the timing of a decision by Moody’s to downgrade Greek debt, yet again, while the talks continued over an additional 60 billion euros in aid.

“Moody’s decision to downgrade Greece comes as representatives of the E.U., E.C.B. and I.M.F. are in Greece to evaluate the country’s economic program,” the ministry said. The three organizations, known locally as the troika, last year pledged 110 billion euros, or $159 billion, in loans to save the country from default.

A review by inspectors, to be completed within days, is to determine whether Greece will receive the fifth installment of the original loan package, valued at 12 billion euros.

The review will be the focus of talks Friday in Luxembourg between the Greek prime minister, George A. Papandreou, and Jean-Claude Juncker, chairman of the Eurogroup, a forum for the 17 members of the euro area.

Public opposition in Greece to the government’s austerity drive has been increasing over the last week. Daily protests in front of Parliament have been relatively small but are growing.

The rallies, in Athens and other major cities, have been modeled on a Spanish campaign that brought thousands of mainly young protesters to city squares and have been organized through social networking sites without the involvement of labor unions, which usually lead Greek demonstrations.

Separately, Spain sold 4 billion euros of bonds on Thursday, meeting the maximum target the Treasury set for the sale, Bloomberg News reported.

Jack Ewing reported from Frankfurt and Niki Kitsantonis from Athens.

Article source: http://feeds.nytimes.com/click.phdo?i=1f46fb74b59480d246002680dc57b861

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