The French Exception

Europeans reacted furiously to President George W. Bush’s decision to slap up to 30% tariffs on imported steel, claiming the move flies in the face of the Administration’s admonitions to other countries to get with the free trade program. But European countries are far from blameless when it comes to liberalizing their own economies.

Fresh evidence of this came last week when, as European Union officials excoriated the U.S., the French government balked at opening its household electricity market to foreign competition. French officials in Brussels cited the recent California energy crisis and the Enron scandal as evidence of the perils of opening up the sector to privatization. Strange then that the French national electricity company EDF, flush with cash from its virtual domestic monopoly, has been snapping up energy utilities in countries where the market has already been opened up.

Energy — along with financial services, telecommunications and transport — was one of the key areas that E.U. leaders wanted to liberalize in order to better compete with the U.S. But the deregulation process is bogged down in the constant struggle to balance social protection with efficiency, plus many countries’ desire to retain their national champions. “Most of the key reforms are still on paper, waiting to be approved and implemented,” says Dutch E.U. internal market and taxation Commissioner Frits Bolkestein. “We can’t keep on saying, ‘The check is in the mail.'”

In the energy market, businesses want that check to arrive soon. European companies pay as much as 30% more than their American counterparts for electricity. “Until the higher energy costs faced by European businesses are reduced, there will always be a big gap in competitiveness with the U.S.,” says Daniel Cloquet, an energy expert with UNICE, the leading E.U. business lobby group. Countries that have liberalized their energy markets over the past decade — including the Scandinavian nations, the U.K. and Germany — have seen electricity and gas bills drop by 23%. In France, the situation is complicated by the upcoming presidential and parliamentary elections. Neither of the leading presidential contenders — incumbent Jacques Chirac and Prime Minister Lionel Jospin — want to be seen caving in to Brussels so close to the vote. This is puzzling, since the Socialist Jospin government has privatized more government businesses than all of his conservative predecessors combined.

After withering attacks from other member states, the French appeared to acquiesce to further liberalization of the energy market for businesses, but are unlikely to embark on any deeper privatization before the election.