The will but little power: In the first of a two-part study of EU competition policy, Andrew Marshall looks at earlier deregulation efforts

BRITISH ministers are fond of saying, after meetings of the European Union, that everything is going their way. Deregulation is on the agenda, labour markets are being reformed, and market forces are coming into fashion.

They can take little satisfaction from the past few months. Air France was permitted a massive capital injection to sustain its restructuring. The European Parliament killed telecommunications legislation that would have begun to open up networks across the EU. And plans to clear up the steel sector ran into problems.

It is true that the White Paper Growth, Competitiveness and Employment, approved by European leaders last year, does promise significant deregulation.

Gunter Rexrodt, Germany's Economics Minister, has put competitiveness at the centre of plans for Bonn's EU chairmanship over the next five months. However, the obstacles to deregulation are immense.

There are three reasons for pushing ahead. The first is that deregulation follows logically from the earlier single market programme. Many sectors remain the preserve of national champions, national regulators and national rules.

The second is a turn towards free markets. In Germany, and to some extent in Italy under Silvio Berlusconi, there is evidence of a growing wave of liberal thinking.

The third is concern that heavy regulation is inhibiting Europe's competitiveness in world markets. That is the message of Unice, the European employers' federation.

'We have kept our eyes closed for 20 years,' said Francois Perigot, Unice president, calling for privatisation and liberalisation.

The European Round Table of Industrialists (ERT), which represents about 40 big European companies, had broadly the same message in Beating the Crisis, which it published last year.

Britain has long pushed this line. Increasingly, companies like British Steel and British Telecommunications - privatised and competing in partly deregulated markets - are taking the argument to Europe.

The transport, energy and telecommunications sectors, largely untouched by earlier rounds of European legislation, will be in the forefront of efforts to dismantle national barriers.

Perhaps most controversially, Europe's labour market, still tied up in legislation in most EU countries, has been targeted for reform. And officials are wading through the catalogues of existing EU legislation to see what is needed and what can be thrown out.

Yet members have different visions. The British view is to remove regulations, but where needed, set them at national level.

The Commission's approach, though less centralist than in the mid-Eighties, is that a single European regulatory regime is desirable for many sectors.

Mr Rexrodt, for instance, had a rather nasty clash with Jacques Delors this year over the planned establishment of a new panel to tackle over-regulation.

Mr Rexrodt said he wanted an independent body to examine EU legislation with a critical eye; Mr Delors was alarmed that this would mean dismantling what the Commission had achieved.

At the Corfu summit in June, it was resolved that the new group would be appointed by the Commission but composed of 'independent personalities'.

The ERT spelt some of the issues out. 'Industry wants fewer and simpler legal and technical controls, not a return to the old confusion of 12 different national regulations,' it said.

This is not an approach that finds favour everywhere. France, in particular, will resist deregulation where it takes power away from the state.

France Telecom, the state- owned telecommunications company, is a national champion and the government will not lightly sign away its special rights.

Paris takes the helm of the EU in January and is already manoeuvring to make sure that many of the crucial decisions on telecommunications deregulation are taken under its aegis.

It is not certain the Commission has the clout to arbitrate in this.

Karel Van Miert, the Belgian responsible for competition, is a highly competent commissioner. But he bent before the French government over cash for Air France, and only two commissioners - Sir Leon Brittan and Henning Christophersen - voted against.

The unwinding of the steel industry, over which Mr Van Miert presides, was criticised by independent producers for allowing state subsidies to prop up the sector, again opposed by Sir Leon.

There is also substantial resistance to a programme of thorough deregulation from other sources. Organised labour remains strong in many of the affected sectors and, as the debacle over Air France showed, when unions choose to come out in force, few governments are inclined to fight.

There is an emerging agreement behind stripping away regulation; but little over how it should be done and what should replace it.

With few signposts for the way forward, the best that can be hoped for in the next six months is a row. One Commission official adds: 'The worst is simply an absence of any discussion at all.'

(Photograph omitted)