TURNING OFF THE LIGHTS

When Tony Blair turns on his lights in Downing Street, the power comes from Electricite de France. Reason: when Britain opened its energy market to competition in 1990, the French company leapt in. But fat chance for a British company to light up the Elysee palace, where French President Jacques Chirac lives. For despite vociferous complaints and its own promises, France stubbornly clings to its state-owned monopoly, protecting 120,000 jobs and closing out foreign rivals--in defiance of its partners in the European Union.

Never has so much history hinged on a simple, boring power company. In the epic battle over the course of Europe's future, EdF has become an improbable litmus test. Will the Continent go along in its time-honored way, protecting government monopolies, favored industries and cozy social-welfare systems? Or will it embrace the free-market reforms economists say are necessary to get growing again--and realize the grand ambition of creating a genuine single market of 380 million consumers, a United States of Europe? Forget lofty debates over whether Europe should be more or less "federalist," or whether it should speak with one voice or many in foreign affairs. At issue here is the hard fact that Europe lags far, far behind America in just about every measure of economic success: growth, job creation, technology. Indeed, the United States' lead in per capita GDP--a fundamental measure of prosperity--is back to where it was in the early 1960s, when Europe was still rebuilding from the war.

So it was, last week, that the worthies of the Union gathered in Barcelona. It would have been easy to mistake it for just another economic summit, a diplomatic gabfest where leaders pose for the camera and issue bland communiques. But behind the scenes, Barcelona was a snake pit of finger-pointing and tough words, with presidents and prime ministers accusing one another of blocking progress and shortchanging Europe's future. And what did it mostly come down to? Yes, electricity.

On one side was the old guard, led by France. With French unions putting thousands of protesters in the streets last week and elections just around the corner, Chirac and Prime Minister Lionel Jospin were in no mood to change the way the country runs its public services, and that includes EdF. Euro- reformers who seek to create a more market-oriented economy (with all that implies in the way of labor mobility, hiring and firing and corporate streamlining a l'Americaine) managed to wring out only the most marginal concessions necessary to keep the summit together. At the weekend, a face-saving compromise took shape: France would open its power market to competition only for commercial customers. Households, which make up 80 percent of the monopoly's market, would be stuck with what they've got.

Who cares, beyond French consumers? British Prime Minister Tony Blair, for one--and so should most Europeans, if they have the good sense to pay attention. Before the summit began, Blair called it "make or break." For a lot rides on Barcelona, beyond eye-glazing "economic reform." At a similar summit in Lisbon two years ago, Europe's leaders committed themselves to an ambitious program to raise GDP by 40 percent, create 20 million new jobs and make Europe "the world's most dynamic and competitive economy" by 2010. Economic liberals, led by Britain, Spain and the Scandinavian countries, had the recipe: free up markets, modernize labor laws and hike investment in education and technology. Trouble is, they've been blocked almost completely by economic laggards such as France and Germany, which have fought tooth and nail to stave off change and protect local interests.

To tip the balance, Blair last month broke an unspoken agreement in Europe to isolate Italy's far-right leader, Silvio Berlusconi. Traveling to Rome, he joined with him in calling for a fresh effort to revive Lisbon and bring Europe into a more modern age--beginning with labor-law reforms and an end to the sorts of games nations play with such markets as (you guessed it) electricity. Britain's own future depends on it. Blair and his Chancellor of the Exchequer Gordon Brown are desperate for signs that the Continent is moving in the same direction as Britain, which leads Europe in creating American-style free markets. For this will determine in turn the timing of any referendum that Blair might call on joining the euro, the common European currency launched on Jan. 1.

Needless to say, the brouhaha over EdF could be duplicated over any number of other issues and companies. That's one reason Mario Monti, the Union's commissioner for competition, won't exempt Electricite de France from the rules, despite tremendous pressure from Chirac and Jospin. He's also fending off Chancellor Gerhard Schroder and the German political establishment over special protections granted to big companies like Volkswagen and the country's bloated and inefficient state banks. Name an industry, in fact, and you find the same problems, from energy to telecommunications, aviation, agriculture, financial services and media.

Small wonder that the Centre for European Reform in London has issued a "Barcelona Scorecard," awarding most EU states C's and D's in meeting Lisbon's goals. "I can't imagine anything that is less of a superstate than the European Union," says Edward Bannerman, an analyst at the think tank. Brussels is too weak to force the likes of France and Germany into doing something that is politically unpopular, he adds, noting that Germany also faces elections later this year. Indeed, Schroder and conservative challenger Edmund Stoiber have outdone each other in bashing Brussels for what they see as its unfair, anti-German policies.

Will Europe's next big step--enlargement--help bring a change? Possibly. Aspirants from the east have been reforming and liberalizing for a decade and, ironically, seem more aware of the relationship between free markets and prosperity than many West Europeans. In Barcelona, they joined the summit for the first time as full working members rather than as ceremonial observers. Poland, for one, has completely opened up its telecommunications market to foreign investors (France Telecom, natch, owns 49 percent of Telekomunikacja Polska, the former state monopoly) and doesn't understand why it should be closed out of others.

Meanwhile, the grandly named Convention on the Future of Europe began with great fanfare last month in Brussels. There, 105 delegates from the 15 members of the EU and 13 hopefuls have gathered to consider proposals for building a better Europe. How to modernize voting and decisionmaking, such as the absurdity of a presidency that rotates alphabetically among members? How to revamp budget subsidies, such as the expensive and anticompetitive common agricultural policy? The goal is still a Europe that could stand toe to toe, economically, with the United States. But if it can't even deliver on its oldest vision--creating a single market, against the special interests of just one French power company--the prospects are less than good.

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