Leading Article: Subsidy junkies and steel chaos

THE Tory and Labour MPs who protested yesterday at the pounds 25m fine imposed on British Steel by the European Commission were wasting their breath. The Commission claims to have evidence that British Steel and 15 other companies systematically and illegally got together to force their customers to pay artificially high prices for steel beams.

Unless the steel companies can show either that the allegations are unfounded or that officials in Brussels gave them authority to break EC law, they have no choice but to pay up. The firms' directors should think themselves lucky they are not in the United States, where enforcement of anti-trust law is more robust.

But it takes no Sherlock Holmes to suspect that the Commission, usually so cautious about punishing price-fixers, had an ulterior motive for the strong line that it took. Much of the evidence on which yesterday's fines were based was collected in 1991. Yet the fines have coincided with some delicate negotiations on the wider future of the European steel industry. The Commission is trying to cut capacity in the European Union's inefficient, protected and loss-making steel industry, and the firms who were fined are not helping.

The plan - and the events that led up to it - exemplify everything that is wrong with the Union. Rather than allow steel companies to rise or fall according to their competitive position in the industry, European governments have for years tried to avoid the political consequence of failures by subsidising the mills to stay open.

When the consequences of over-capacity became inescapable, ministers avoided abolishing the subsidies outright. They put together a modest pounds 200m plan to retrain the workers made redundant - but decided to spend a further pounds 5bn on more subsidies, demanding compensating cuts in capacity. Rather than allow the axe to fall on the inefficient nationalised steelmakers, the ministers and the Commission decided instead to impose 83 per cent of the cuts on the more productive private steel firms, among them British Steel. Understandably, the firms have resisted.

European policy on steel is now in such a mess that it is hard to see a way out - and probably too late to unravel the steel package that has already taken shape. But the lesson for the future should be clear. Rather than placing their faith in the principle of 'one last fix' - a final, but usually not quite final, injection of cash to help the subsidy junkies kick their habit - Europe's governments should be focusing on the interests of consumers. Taxpayers' money should be spent not on keeping unproductive plant working, but on finding new work for those employed in it.

The difficulty is that this is not a message that the governments of Germany, Spain and Italy want to hear. Whatever the outcome of any appeal against yesterday's fines, Britain faces an unpalatable choice: to exercise a veto and thus irritate its allies; or to acquiesce in an expensive and self-defeating policy.