Is Europe starting to close its doors to foreign competitors? Recent calls to establish “European Champions” in the wake of the U.S.-led trade wars and an attempt to invigorate flagging economies suggest that Europe is starting to pull up the drawbridge of Fortress Europe. Increasing populism throughout the EU, especially in core economic leaders such as Germany and France, are driving political leaders away from globalist principles and towards a more nationalistic economic strategy.The growing Green party politics at the European and national levels are also helping to restrict foreign market access: raising non-tariff barriers (NTBs) for exporters under the guise of consumer safety and environmental protection. As formerly staunch globalists leave center stage and attacks are made on the existing competition structure in the EU, what political risk might foreign firms face in Europe in the near and mid-term future as these political and economic protectionist movements play out?

Paradigm shift towards protecting domestic/European businesses?

In early February, Germany’s Federal Minister for Economic Affairs and Energy, Peter Altmaier, announced a new industrial policy to protect domestic technology companies. This also includes a potential investment fund to boost their competitive development.  Soon thereafter, France and Germany jointly called for the creation of European “Industrial Champions” that could take on heavyweight companies, especially in the high tech industries, from the U.S. and China.  This strategic shift is in direct response to the U.S.-led, multi-front trade war, but also reflects a new paradigm in the EU. Globalist leaders are losing political clout across the continent to parties on both the right and left edges of the political spectrum. With the UK – traditionally a free-market champion – divorcing from EU economic planning, this Franco-German push for government support for domestic business will have an overwhelming voice in European Union strategic thinking.

France and Germany have faced structural challenges with the competition regulations in the EU, which torpedoed the recent attempt to combine French Alstom and German Siemens into a larger train-producing company. However, in the face of slowing growth and a recognition that the rules of the global trade game are changing, EU nations are hoping to shift to a more Euro-centric and aggressive mode to protect their interests. Back in December, nineteen European member states announced their joint interest in modifying the competition rules in the EU to help facilitate the creation of European powerhouse companies.  More recently, Dutch PM Rutte highlighted that the EU has to get more “streetwise” in competing with other powers on issues of global trade and politics.  The gloves are coming off.

Populist parties as the driving force towards protectionist policies

The Alternative für Deutschland (AfD), as a surging German populist party which did not focus much on economic woes among its voting bloc, nevertheless pulled the national dialogue away form the globalist rhetoric that had been previously espoused by Angela Merkel’s CDU.  Prior to the 2017 elections, the party hung its economic hat on departing the Euro zone, and railed against the Greek bailout which Germany had reached out to finance over the last few years. Now the party has decided to back the German diesel car industry in an attempt to capture voter interest, seizing on the protest movements in France as inspiration for the protection of domestic markets.

As in Germany, the populist movement in France is running on a platform to protect its own national interests over European unity.  Titled ‘intelligent protectionism’, the proposed policies of Marie Le Pen’s National Rally party are intended to shield French industries from outside competition. Le Pen laid out her approach in 2017, and of special concern to foreign businesses is her interest in establishing an Economic Security Agency to limit and monitor foreign investments in France, as well as her intent to force the French state to buy exclusively from French companies. While these approaches would require changes to existing, EU-wide law, the popularity of such approaches in the populist rhetoric across Europe is clear.  Certainly, voters in key nations such as Italy – once a strong and reliable proponent of an integrated EU – will also be willing to consider changes to EU regulation which would give their government greater authority to defend national industries from foreign competition.

The risk of greater government scrutiny and political attacks against “foreign” firms (most of who are of course also registered as European companies) seems to be increasing, especially if they appear to compete with domestic start-ups in the tech area. Attacks on established tech giants over privacy concerns, competition law and taxation issues are well-known. The campaign against Huawei, prompted initially by the U.S. and U.K. and increasingly taken up by continental EU nations, helps to show that many European officials are more comfortable taking a stand against Chinese state-owned enterprises that compete directly with European firms such as Ericsson and Nokia. There is certainly an element of national security driving these public condemnations and concerns, however, economic nationalism undoubtedly flavors the recent actions many EU states are taking, as they strive to keep domestic firms competitive in a tepid EU economy.

Green party politics are limiting market access

Another important element of this shift away from globalization and open markets are the policies of Green / environmental parties in Europe. Both at the national and European level (where the Greens hold only 6% of the seats at the European Parliament, but have grown steadily over the last three elections), Green parties have encouraged policies which serve to limit non-EU business access to the common market.  Programs such as REACH (regarding chemical limitations), phytosanitary restrictions, limitations on packaging, an emphasis on consumer rights and sustainability/fair trade requirements and restrictions on GMO content in food products indirectly limit market access for outside companies that rely on less stringent or politically-driven standards in their home markets.  As the UK – where its Green Party is not as influential as that of other EU countries – is leaving the EU in the next few months, the sway of Green party politics on the European regulatory regime may increase, further closing the European market to outside companies.

How businesses can respond to the risk of Fortress Europe

Apple, Ford and Amazon are identified as U.S. companies no matter how they might be structured, but for the majority of foreign companies, much of the threat of a defensive European market can be rendered toothless by establishing a European corporate arm in the EU or partnering/merging with existing European companies.  For the purposes of public tenders which may see heightened restrictions based on burgeoning populism/nationalism, question of board composition may eventually come into consideration, but for now, flexibility of corporate structure may be the easiest solution. For exporters, the issues are more complex. Facing a “Fortress Europe”, companies will likely see more NTBs and state support to European companies (especially in the tech sector) which will hamper their ability to compete.  Rhetoric against “foreign” companies is an easy balm in election season when the economy is struggling. In the next decade, expect to see European politicians proactively defending national companies and “European champions” over the previous globalization rhetoric as populism swings the economic pendulum towards protectionist policies.

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The post Merkel’s attack on Trump: German leader tells Davos Stronger EU is needed to take on US first appeared on Garner Ted Armstrong Evangelistic Association.

Merkel is just the latest leader at Davos to criticize a protectionist and isolationist stance towards the world’s problems.

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Angela Merkel, Germany’s chancellor, delivers a speech during a plenary session on day two of the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, Jan. 24, 2018. World leaders, influential executives, bankers and policy makers attend the 48th annual meeting of the World Economic Forum in Davos from Jan. 23 – 26.

German leader Angela Merkel said that multilateralism was under threat and said that protectionism is not the answer to the world’s problems.

“Frankly speaking, the country I have the honor to represent and where I am chancellor has difficulties. And polarization is something that we see in our country as well, which we haven’t had for decades,” Merkel said.

She attributed increasing populism and polarization to both the euro zone crisis and migration crisis seen in Europe over the last few years following an influx of refugees, but said Germany would not shrink from the world stage.

“Germany wishes to be a country that lends its contribution in the future to solve the problems of the world together, we think that shutting ourselves off and isolating ourselves will not lead us into a good future. Protectionism is not the proper answer,” she said.

Merkel is just the latest leader at Davos to criticize a protectionist and isolationist stance towards the world’s problems. Such comments appear to be directed towards President Donald Trump who has adopted an “America First” stance in his foreign and economic policies.

‘Not learned the lessons from history’

In contrast, Merkel said the answer to the world’s problems was to see multilateral solutions instead of a “unilateral, protectionist course” of action.

At the start of her address, Merkel referenced both world wars in the 20th century, saying that the “political actors involved had almost sleepwalked into a horrendous situation.” She said there was a danger that the world had not learned the lessons from history.

She said the foundation of the United Nations (UN) was a multilateral and cooperative solution that was borne out of World War II, adding that a multilateral response helped to resolve the global financial crisis of 2008-2009.

Check out the world leaders and celebrities who are at Davos this year

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German coalition talks

Merkel’s comments come amid continued speculation over Germany, and indeed Merkel’s, political future after months of negotiations aimed at forming a coalition government. This after no one party gained a majority in last September’s election.

Merkel’s conservative alliance of the Christian Democratic Union (CDU) and Christian Social Union (CSU) first attempted to form a coalition with the Green party and pro-business Free Democratic Party (FDP), but it failed after the parties couldn’t agree on various policies ranging from immigration to euro zone integration.

With no prospect of an alliance, Merkel’s coalition partner in several former governments, the Social Democratic party (SPD) led by Martin Schulz, did a U-turn on an earlier pledge to voters not to go into government with the CDU-CSU again and began talks with Merkel’s conservative alliance in January.

The decision could backfire on the SPD which performed badly in the last election due to its supporters’ disapproval of its alliance with the CDU-CSU. As such, the SPD is likely to extract many concessions from the CDU-CSU during upcoming negotiations in return for its support in government.

There is also doubt over whether Merkel, known as “Mutti” (mother) in Germany, will see out the whole of what will be her fourth term as chancellor and there is speculation on who her successor might be.

Merkel said Wednesday that she would continue to hold talks aimed at forming a government “as quickly as possible.” Speaking on Germany’s economy, she said it had enjoyed 11 years of consecutive growth but needed to modernize and make more progress in terms of digitization.

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Source: https://www.cnbc.com/2018/01/24/germany-has-difficulties-and-polarization-that-we-havent-seen-for-decades-merkel-tells-davos.html

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