Tuesday, February 10, 2009

Protectionism: Sarkozy vs Topolánek

The Czech EU presidency - which has so far been "excellent" according to Barroso and others (and has improved the Czech government's approval rate) - currently has to deal with some "bad guys" of Europe. It turns out that the worst guy in Europe happens to be Nicolas Sarkozy, the French president. He decided to promote protectionism in the most brutal way imaginable.

Xinhua quotes him as saying the following thing on French TV:
"It is justifiable if a factory of Renault is built in India so that Renault cars may be sold to the Indians. But it is not justifiable if a factory of a certain producer, without citing anyone, is built in the Czech Republic and its cars are sold in France."
Have I heard you correctly, Mr Sarkozy? Is it not acceptable for you if PSA Peugeot Citroen opens a plant in another, more efficient region of the European Union and sells the cars in the whole European Union, namely in Kolín (Czech Cologne) where a joint plant of Peugeot/Citroen and Toyota operates?

I simply can't believe that a superficially right-wing and pan-European president could have said something along these lines. It's stunning. Thank God that Sarkozy's approval rate in France just dropped to a record low, 36 percent. The right to produce cars and sell cars in different countries is a basic assumption of the international trade that should be respected for all pairs of countries. But right now, we are even talking about two countries in the same de facto confederation, the European Union.

Moreover, Sarkozy is among the people who would love to transform the EU into a federal state. But does he want to ban the export of cars from one region of this would-be federal state into another? Needless to say, his words were not only a radical defense of protectionism - which is not really popular in Czechia as a matter of principle - but also an attack against the rights and interests of the Czech Republic.

But be sure that other countries, such as Sweden that takes the EU presidency after Czechia in July, are very worried about the French car plans, too. In this Swedish case, the criticism is directed against yet another evil French decision, to provide the local carmakers with huge loans. Also, Slovak PM Fico said that if France doesn't stop its "brutal" protectionist speech instantly, they will send Gaz de France - a current stockholder of Slovak gas companies - back to home because the dividends might be helpful for Slovakia right now. The EU commission won't tolerate the French moves if they violate the rules of the internal EU market i.e. if the moves were meant to keep the production at home (which Sarkozy explicitly said): they're illegal.

Knowing the dynamics of similar exchanges in the past, president Klaus reacted diplomatically: "I've vowed not to comment on any of President Sarkozy's statements as it would unnecessarily provoke reciprocal [reaction]." Nevertheless, Klaus has repeated that protectionism was unacceptable.

However, prime minister Topolánek, who is often viewed as Sarkozy's Czech friend, has strongly criticized the French president, explaining that these words could be the last nail in the coffin of the Treaty of Lisbon, because of the looming Czech vote about it.
"I personally consider the spirit of protectionism the principle that could extend the whole crisis and that would hamper the EU's internal unity. In this point I and the Slovak president understand each other,"
Topolánek correctly added. Those who know what was the 1930 Smoot-Hawley Tariff Act must also know how disastrous protectionist policies can be in extending recessions. There's no doubt that at this moment, we are talking about depressions that would be caused by bad politicians, not about imperfections of the free markets.

Mr Topolánek plans to go after the neck of the "rule breakers" in the core of the eurozone. Forbes quotes him writing that "The response of the euro zone countries to the financial and economic crisis deformed the joint project of the euro more than any other imaginable event."

Needless to say, Sarkozy's dreams about PSA Peugeot Citroen's shift of the production from Czechia back to France are completely ludicrous. The company has no plans like that, they seem economically preposterous unless the Czech nominal salaries converted to the euro will jump three-fold, and Sarkozy would have to acquire the powers of Adolf Hitler to be able to guarantee such a shift despite all the reality.

If they can't sell those French products, they may want to follow Sony's example how to market very similar products. ;-)

France is flooded with unsustainable welfare "achievements" and excessive salaries in general, Sarkozy is doing nothing against these things himself - in fact, he has become another puppet controlled by France's notoriously truculent labor unions that abuse crises much like everything else -, so he shouldn't be surprised that the workers in the local car companies are not competitive.

The only thing that PSA Peugeot Citroen would achieve by moving back to France would be to lose the battle with competitors, including Volkswagen, who are surely not going to get rid of plants in countries with cheaper labor, including Škoda car plants in the Czech Republic.

As Forbes wrote, Mr Topolánek referred to "really selective protectionist steps and declarations, among others by President Sarkozy, which led me to calling the extraordinary summit."

The Czech media call the summit, to be held alter this month, "a summit against Sarkozy". Once again, it's very questionable whether the Czech Republic can do much. It's not only small but its banking sector is stable which is another reason why people will think that the Czechs shouldn't be talking about such things. But is this logic sensible?

Should the countries whose financial institutions have deteriorated be advising the whole continent or the whole world about these matters? Should the countries whose leaders think it is "unjustifiable" to disagree with protectionism advise others on matters of international trade?


  1. What else can you expect from a pragmatist statist? Pragmatism is basically amoral, but the done thing is the expedient. Protectionism is the expedient if you are a statist.

  2. Dear Cassandra, I agree it should be expected. Still, there are two aspects about this behavior:

    1) generally ideological - Sarkozy is clearly a statist.

    2) international diplomatic. Protectionism of this kind may be seen as a kind of help to France, in the short run, but on the other hand, it is clearly causing a damage to other places, and Sarkozy has mentioned my country as a desired target of "punishment" explicitly.

    The second point is just crazy, especially from a guy who has been saying colorful things about the European unity and all this nonsense.

    He doesn't want to seem to respect basic rules of international co-existence and trade - rules that, in my opinion, should be respected even towards countries like Cuba, Venezuela, or Iran.

    I don't quite understand why we would want to strengthen our ties to a country whose leader explicitly says that he will screw us whenever he finds it convenient. He's a bastard.