View from Brussels: Uneasy options as the European debate unfolds

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AN interesting battle is shaping up in the European Community. In the red corner, Jacques Delors, fighting for greater state involvement in industry and a new approach to helping people stay in jobs. In the blue corner, John Major, pushing for a retreat from grandiose ambitions for social policy and laissez-faire.

Things are never that simple, of course. Mr Major and Mr Delors are not quite so far apart as the reports from the Copenhagen summit indicated. But with the President of the Commission pushing for a new plan for economic revival, and the Prime Minister trying to scale back the EC's activities, there is a debate going on in Brussels that will be of more than passing interest to business over the next six months. There are interesting parallels with the debate that took place in the US in the 1980s as its trade balance dipped into the red.

Mr Delors' blueprint for competitiveness includes new spending on information technology as part of an eight-point plan. It also envisages more spending on research and development, a refocusing of education and training and a rethink of taxation policies.

The idea has backing in the Commission. Martin Bangemann, the industry commissioner, has also said that he wants telecommunications and information technology to play a large part in policy over the next two years. Karel Van Miert, the competition commissioner, has made lots of emollient noises about taking a more pragmatic view of mergers and acquisitions intended to create world-class competitors.

The balancing viewpoint is that economic revival depends on liberalisation of markets, international free trade and a reduction in social costs. Mr Major speaks not just for British business but also for many of the EC's largest companies when he says he does not want a return to 19th-century working conditions, but rather a hard, cool look at the costs of production, including social costs.

He has allies, too. Sir Leon Brittan, Mr Van Miert's predecessor and now external economic affairs commissioner, has said that the debate over social policy is not all about 'sending children up chimneys'. One of the Commission's economic liberals, he is also likely to resist high-spending programmes to pump cash into national or European champions.

The balance between liberalisation and industrial policy has visibly shifted in the EC over the period of the implementation of the single market. Liberalisation was given a big boost by the agreement last Saturday on a common system of charging trucks for using roads. This comes close to completing the single market in transport, but it took a great deal of arm-twisting. Of yet more far-reaching importance is the plan to liberalise all telephone services by 1998. But this gives a lot of flexibility to the EC's 'poor four' - Spain, Portugal, Greece and Ireland - and also to countries with 'very small networks', a category in which Belgium thinks it is included.

Liberalisation can be very painful. In the telephone services area, for instance, it will mean 'rebalancing' charges by raising the cost of domestic calls and lowering those of international ones. The rows that accompanied the liberalisation of Britain's telephone market will be duplicated over the Community.

But spending more is not an easy option either. As a recent decision on funding to support high-definition television shows, getting agreement on spending packages to support high technology is not easy. The amount of EC cash was reduced from ecu850m to ecu228m and the attempt to set a European standard for HDTV was withdrawn. At the same time, the EC's various technology initiatives have been far from universally acclaimed.

More to the point, Mr Delors' initiative does not say where the money for all this activity will come from. The idea of partnerships between government, industry and finance is likely to surface by the time of the Brussels summit in December when Mr Delors will present a White Paper. But with Britain already querying the use of interest rate subsidies for small business and the EC budget already likely to burst its banks, any question of new Community cash will cause enormous rows.

Perhaps more interesting is whether the Commission has the strength to push through a programme. Mr Delors was obviously ill at the Copenhagen summit, and his sciatica problem was an opportunity for metaphors about 'the nervous system of Europe'. He will leave at the end of next year, and successors are starting to make their position clear, including Sir Leon. The Commission has only a two-year term.

The deciding factors in the debate will be partly political, partly economic, with member states matching their own national industrial goals against those of the Commission, and seeing where they can get most bang for their bucks. But business will also have an important impact on the debate.

Some senior European businessmen have been bending Mr Delors' ear over the past few months, telling him they are concerned by rising costs: not just in social policy, but also in energy, the environment and transportation. Others would clearly like some assistance in funding massive new public infrastructure projects.

Business is getting smarter in dealing with the Community. Last week's session of the European Parliament saw a large presence of lobbyists seeking to change a directive on packaging. Unice, the European employers' federation, broke cover earlier this year and said it wanted the Commission to cut out a lot of planned social and environmental legislation. But as Christopher Jackson, one of Britain's Conservative Members of the European Parliament, pointed out this week, business still lobbies in a fragmented and inefficient way. If there is a head of steam building up behind scaling back EC social policy, it has yet to start driving the train.

It is the response from business in terms of investment, acquisition and production that will determine the success of Mr Delors' ideas. The liberalisation of transport, for instance, depends on cross-border investment by transport companies. The HDTV initiative relies on the plans made by broadcasters, and support from industry. Telephone liberalisation is ultimately dependent on the European service providers, most of whom are now state-owned but heading into the private sector. Mr Delors' plan is partly aimed at winning backing from European high-tech companies, but also the service and manufacturing companies that will use the new networks.

Standing on the edge of the debate is the presence of the United States. Partly, the reason for the revived debate over industrial policy is Bill Clinton's turn towards a more managed approach to the economy. But the public sector will play a smaller role than is envisaged in Mr Delors' plans, one that is 'enabling' in the current jargon. Partly it is the presence of US companies - AT&T, for instance - knocking at Europe's doors that has persuaded the Commission to look afresh at industrial policy. Many of the companies that would play a large part in any US information technology initiatives have an EC presence, and they will scream the house down if Mr Delors' plan materialises, but locks out non- European companies.

The prospect of both the US and the EC heading for the same goal - high-technology, jobs and growth - but by different routes, promises some juicy rows, on the lines of the current spat over public procurement. The private sector, on both sides of the Atlantic, could end up paying the bill.