What Germany and France must rediscover

When Tony Blair, the prime minister, launches the discussion on European Union economic reform and social models at Hampton Court this morning, some of his fellow EU leaders are likely to feel under pressure. They will be tempted to adopt a defensive attitude against what they will perceive, despite their host’s amenable tones, as yet another attempt to persuade them to reform their economies in an Anglo-Saxon direction. Jacques Chirac, the French president, and Gerhard Schröder, the outgoing German chancellor, are the ones most likely to feel the heat. In fact, their economies, alongside Italy’s, are among those most in need of faster reform if they are to improve their own growth and employment performance. In addition, the rather recalcitrant stance that Germany and France – once the driving forces of economic integration – have taken in recent years regarding the development of a market economy in Europe has held back the implementation of the single market, with negative consequences for the whole European economy. The two countries have acted to slow down the pace of energy liberalisation, to dilute the effectiveness of the takeover directive, to oppose the services directive, to try to resist the full enforcement of competition rules and to indulge in various forms of economic nationalism.
While in the past few years Germany and France have introduced some significant first measures of economic reform, an emerging cultural obstacle seems to prevent them from embracing bolder reforms at home and a more supportive approach to further economic integration in Europe. This obstacle is a growing uneasiness with the "market economy". It can be noticed in statements and attitudes of political leaders of various orientations, in the wider public opinion and occasionally even in the business community. The tones differ, perhaps more bluntly defensive in one country and with a Colbertian lineage in the other. It is best revealed by the adjectives, not meant to be laudatory, that are used more and more often when referring to the "market economy": "ultra-liberal and Anglo-Saxon". This conceptual association is misleading.
First, it gives the impression that the "Anglo-Saxon model", observed in the UK and in Ireland’s "Celtic" variant, is the only one available if France and Germany are to become more competitive and meet the challenges from globalisation. This is not the case. As shown in the policy brief of the think-tank Bruegel, published on Monday*, there are some key elements of the "Nordic model" – practised in the Nordic countries but also in Austria – that could help France and Germany, as well as Italy, to achieve a high degree of social equity but in ways that are more consistent with economic efficiency and competitiveness.
Second, is the market economy in Europe inherently connoted – tainted, some would say – by the Anglo-Saxon approach? If they believe so, the Germans and the French subvert history and engage in excessive modesty. It was, in fact, Germany, with the co-operation of France that imprinted on the nascent European construction a solid market orientation. Ludwig Erhard first applied as German economics minister in the 1950s the principles developed by the Freiburg School in earlier decades and put in place in Germany the Soziale Marktwirtschaft, based on markets and competition. With the help of France and Italy, this concept permeated the Treaty of Rome of 1957 and was most visible in the articles on market integration and competition rules.
"Anglo-Saxon", we read in the Oxford Dictionary, means "English Saxon (as distinct from Old Saxons of the continent)". Well, with due respect to the venue of this morning’s meeting of EU leaders, there are not many Anglo-Saxon chromosomes in Europe’s market economy. When the Rome treaty launched on the continent the market economy, the British economy – 22 years before Baroness Thatcher – was not exactly "ultra-liberal". It was, perhaps, "paleosocialist".
In fact, those advocating the accession of the UK to the Common Market in the early 1970s argued that only by anchoring Britain to the principles of the market economy inspired by Germany and embodied in the European Economic Community would some order and efficiency be brought to the country’s economy.
Thanks to participation in European integration – and the determination of Lady Thatcher in bringing the Markt to the UK and of Mr Blair and Gordon Brown in strengthening it while making it more Soziale – the British economy is remarkably successful. But as Germany and France are confronted by difficult decisions to make their own economies more efficient, and again to drive the European economy, it is crucial that their leaders take a more confident approach to economic reform.
They do not have to acquiesce to the humiliating importation of an alien model. Germany and France simply have to rediscover themselves. They should be proud of their contribution, not only to the political, but specifically to the economic success of post-war Europe. They sustained the growth of the European economy through the growth of their own economies and showed other countries a "model" for economic success. They need quickly to reform and modernise their model, not repudiate it. The good use that others have made of the principles drawn from it should give them pride – and the courage to embrace change.
*Andre Sapir: Globalisation and the reform of European social models

This article was also published by the Financial Times.