Charges of Protectionism Cause Worries Within the EU

Last week I wrote about the challenges that Milton Friedman predicted would lead to an eventual break up of the Euro Zone. Friedman based his comments on his belief that when push comes to shove, regional interests will force local politicians to abandon the principles of the European Union in order to save their political skins at home.

Recently, France released 6.5 billion euros ($8.5 billion USD) to provide emergency assistance for French auto manufacturers. In return, the automakers promised to keep plants open in France – and while not stated in so many words – the implication was that if job cuts were necessary, they would be made at plants in other countries before reducing positions in France.

The Czech Republic – home to a massive Peugeot / Citroen plant that opened in 2005 – naturally cried foul. Despite this, French President Nicolas Sarkozy went one step further suggesting that French automakers should even close plants in the Czech Republic to ensure that plants in France can avoid any layoffs whatsoever.

In response, Czech Prime Minister Mirel Topolanek has called for a meeting to discuss how EU countries can “coordinate” their response to the economic crisis and the European Commission has asked France to clarify its position on its auto sector funding.

Ultimately, any pressure Sarkozy receives from the EU will be nothing compared to the pressure he is feeling at home. And with three years left in his mandate, Sarkozy has a lot of work to do if he expects to win a second election. After several years of declining unemployment in France, the trend has reversed and unemployment is now at 7.7 percent and will most assuredly continue to climb. Economic growth is flat and consumer spending is on the decline – demonstrations and anti-government rallies are growing.

This really serves to underscore the problem facing any government in the current economic climate. How can you be seen as being protective of your country’s economy without being labelled a protectionist? How can you use taxpayer dollars to support an industry in an attempt to save thousands of jobs and still be responsible by ensuring the money is used to help companies within your jurisdiction?

About the Author

Scott Boyd has been working in and writing about the financial industry since the early 1990s. As a technical writer and project manager with several of Canada’s leading financial institutions, Scott has produced educational materials for investment system end-users including portfolio managers and traders. Scott now administers and contributes to OANDA FXPedia and regularly provides commentaries for the OANDA FXTrade website.

This article is for general information purposes only. It is not investment advice or a solicitation to buy or sell securities. Opinions are the author’s — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use apply.