Holding Back Europe’s Economic Nationalists

The global economic crisis, together with the growth of emerging markets, is putting Europe’s longstanding overcapacity problems firmly in the spotlight. To prevent the EU's single market from going bust, national policymakers must implement industrial restructuring policies in tandem.

PARIS – The German and French governments have been scrambling to save their automobile and truck industries though big fiscal injections, making it clear that, within much of the European Union, industrial policy has returned with a vengeance. But, throughout last year, French, German, and other EU leaders worked against rather than with each other when putting their policies in place. As a result, some European industries got undue protection, while others were squeezed out of the market.

The lesson is clear: European governments must work together when implementing industrial policy. But they also need to do much more to promote innovation and competitiveness.

The French and German governments intervened last year with capital injections to replace deserting shareholders. They buttressed weakening demand by subsidizing sales, stimulating research into cleaner technologies, and protecting jobs. These recovery schemes put national interests first, using the argument that taxpayers’ money must be used to defend the nation’s companies and workers.

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