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Unravelling

Posted by Richard Thursday, February 05, 2009 , ,

An intriguing article in The Financial Times pulls together some of the recent events, under the label "protectionism" and concludes that we are looking at "economic nationalism".

Examples it gives are the strikes against the use of foreign workers in the UK; French carmakers told to buy domestic components and not close factories in France; and a minister in Spain urging consumers to buy Spanish. It also notes that many of the banks which have been bailed out by their national governments are now under considerable pressure to lend to local enterprises rather than play the international market.

The piece is rather convoluted but what stands out is a comments that some of the financial integration that EU policymakers laboured to promote during the good times has already been rolled back by the current crisis.

One such is the splitting up along national lines of Fortis, the Belgo-Dutch finance group. Bank bail-outs have had similar effect, such as with France offering to inject €21bn into the country's six largest banks to ensure they were not at a competitive disadvantage to UK or US rivals.

Then we get Nicolas Véron of the Bruegel think-tank in Brussels saying that, "There is a very strong law of unintended consequences taking place after all the bank bail-outs. We will see more and more activist government policies that distinguish economic activities according to the nationality of the actors." It should be a big concern to everybody, he adds.

To put the icing on the cake, we then hear from Daniel Gros of the Centre for European Policy Studies. He says: "The consequences of such protectionism are likely to test Europe economically, politically and legally … Unravelling the integration of the banking market will cause a lot of damage."

"Unravelling" is a word I love to hear. The "colleagues" are getting a tad worried. In highly technical ways, that are far from clear, step by step, the "project" is being dragged backwards. The "British jobs for British workers" strikes were just a start.

For decades, the colleagues have been telling us that the process of integration is "inevitable" – unstoppable even. But the fact is that, when the chips are down, self-interest comes to the fore. Call it "economic nationalism" if you like. A better name for it is simply nationalism. It is the only thing that works, and it looks like its coming back into fashion.

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