When the smoke clears at Orly: BA won the fight, but has Britain learnt the lesson of deregulation in Europe, asks Andrew Marshall

IN THE end it did not come to it, but British Airways was ready to fight for access to Orly, the international airport closest to the centre of Paris. The airline's struggle ended in a French climbdown on Sunday. Yet the conflict is far from over. The battle of Orly is just one fight in a much longer, harder war over the deregulation of Europe, and it is increasingly unclear who, if anybody, can keep the peace.

Deregulation - stripping away layers of state legislation, allowing in new competitors and removing the barriers around national markets - was at the heart of the European Union's ambitious project to create a single internal market, permitting the free flow of goods, services, people and capital around Europe. But it was a project that failed to dent many of the most sensitive sectors, where considerations of employment and state ownership militated against market opening.

Now, many of these issues are coming to the boil. Airline deregulation has been a particular problem. The market is still carved into national slices, with little competition on routes or prices. The fight for landing rights at Orly took place when the European Commission finally lost patience with the French resistance. Even then, it took a weekend of hard bargaining between Paris and London to gain a result.

The difficulties are, if anything, greater still in telecommunications and energy, both sectors that Europe is eyeing for future liberalisation. All three are now global markets, but in Europe they are dominated by national, state-owned companies, with jealously guarded privileges that they will not easily give up.

A head of steam is building up behind the campaign to remove them - and Britain, and British companies, are in the vanguard. Britain moved first to liberalise and deregulate, with the privatisation of British Airways, British Telecom, and the gas and electricity sectors standing as milestones. Now these companies are taking their standard into the enemy's camp, seeking markets in Europe.

More surprising is to find Germany alongside Britain, waving the same flag. Germany is one of the most tightly regulated countries in the world. But as it heads into an election campaign, Chancellor Helmut Kohl's ruling coalition, with the prodding of German business, has discovered the virtues of free markets. Businesses are the consumers of these services, and with rising costs and falling profitability, they want action.

France leads the sceptics. Although the government of Edouard Balladur has taken France down the privatisation road again, the state maintains a strong strategic presence in the economy, and national, state-guided solutions are preferred. And France is by no means alone in opposing the British model for opening these sectors.

Public services are not normal markets: they have social and political importance. France, for instance, has used local air routes as a means of regional development; opening the market to foreign competition will provoke screams of agony. In telecommunications, there are problems about how to provide access for all to a reasonably priced service. Moreover huge numbers of people are employed at state- owned telecommunications, transport and energy companies - many of them the last bastions of union power. The role of the state also comes into play where, as in telecommunications, the sector has a long and traditional relationship with government.

But this struggle is not one-dimensional. Alongside the rift over the role of the market is a second one - over how far deregulation is a European exercise, intended to build a stronger and more cohesive Union as well as a more competitive one.

It was always short-sighted to believe that a real single market could be built so long as the crucial ties that bind the states of Europe, the links that bring people and businesses together, remained untouched. If you do business in Europe, you will know how expensive planes and telephones are, how difficult it is to make the right travel connections and how many telephone plugs you need.

The White Paper produced last year by Jacques Delors explicitly provides for deregulation as a mainstay of efforts to revive European competitiveness. But Mr Delors also wants a strong European Commission to replace the nation-state, with the accent on retaining social stability, spending to create new infrastructure, and new protection for workers. Britain, in contrast, sees this as hoary old state intervention in another form.

The struggle came to a head on Monday, when finance ministers met in Brussels and a German plan for deregulation was put on the table. Mr Delors was unhappy: it put too much power in the hands of outside experts, weakened the EU's political structures and went too far in removing labour market protection. 'President Delors is resisting this,' said Kenneth Clarke. 'He gave a splendid illustration of how bureaucracy will not reform its own procedures and is somewhat impervious to suggestions that we might make faster progress in relieving the burden on industry caused by excessive legislation.'

But, as the battle of Orly shows, any strategy to create open markets in Europe remains weak so long as it lacks support from an effective, tough authority in Brussels. Without strong institutions at the centre of Europe to police the emerging new markets, the chances for the emergence of Britain's free-market utopia is small. State subsidies to industry already threaten to distort the market in many sectors.

The evidence of the last year is that countries feel increasingly free to disregard the writ of Brussels, whether it be France over airlines or Germany over imports of British beef. Partly, this reflects electoral calendars. But it has much to do also with the efforts of the past few years, led from London, to put handcuffs on the commission and EU institutions, and a rising tide of Euro-scepticism.

Paradoxically, as deregulation shifts on to the European agenda, London may find itself in need of tough action from the commission. And if Britain is going to build a consensus for deregulation, it will have to start and end its fight in Brussels.

(Photograph omitted)