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Tuesday, March 16, 1999 Published at 15:33 GMT

Business: The Economy

EU: Business as usual?

Trade and merger issues could be paralysed

Currency markets trembled as the resignation of the European Commission had an immediate impact on the euro.

Europe's single currency immediately weakened by more than one cent against the dollar, before stabilising at around $1.08, just above its all-time low against the dollar.

EU in crisis
But the paralysis of the European Commission's decision-making apparatus could also have more damaging long-term effects on business.

It is trade policy and competition policy that could be most affected by the lack of political direction.

Banana wars

Since the creation of the single market, the European Commission has always played a dominant role in trade talks.

[ image: US beef imports could become another flashpoint]
US beef imports could become another flashpoint
Now the EU is embroiled in a damaging trade war with the United States which is reaching a crucial stage in the World Trade Organisation. The absence of political leadership could crucially weaken the EU's ability to respond to the trade sanctions which the Americans are planning to impose against European goods.

Trade Commissioner Leon Brittan has been leading an aggressive series of negotiations with the US trade representatives.

But with the WTO due to give its final verdict in a few weeks on the legality of the EC's rules on banana imports, any delay in reappointing commissioners could leave Europe without a clear direction as the showdown approaches.

Also imminent is the decision by the UK government on whether to give £200m in state aid to BMW in order to modernise the Rover Longbridge factory in Birmingham. Such subsidies have to be approved by the European Competition Commissioner, Karel Van Miert.

It is unclear whether the government would go ahead with the deal and seek to negotiate later with a new European Commission, or delay its decision on the fate of Longbridge until the resignation issue is resolved.

Competitition policy

[ image: Big merger decisions could face delay]
Big merger decisions could face delay
The European Commission also plays a key role in approving mergers on a European scale. Any company with sales of more than 250m euros in two European countries has to receive approval for its pan-European acquisitions.

Four big merger decisions had been expected on Tuesday, the day after the Commission unexpectedly resigned.

And the Commission was also due to announce its view of the $10bn global telecom venture between BT and America's AT&T on April 19.

The Commission says that day-to-day decisions won't be affected by the political impasse, and competition lawyers agree.

"The Commission will continue to operate as a competition watchdog..I do not expect any problems," commented Stephen Spinks of the US law firm Coudert Brothers.

But although the routine work of approving uncontroversial mergers will continue, decisions on the bigger and more problematic mergers must be approved by the Commission as a whole, voting as a body.

Back to business

Competition Commissioner Karel Van Miert, who was cleared of any wrong-doing by the report, wants to be re-appointed as soon as possible.

"It would be good to try and get the Commission back in the saddle as soon as possible with a number of changes so it can fully resume its role again," he said on Belgian radio.

Other key deals, such as the long-delayed merger between British Airways and American Airlines, have been also the subject of an on-going battle between Competition Commissioner Van Miert and Transport Commissioner Neil Kinnock.

Some competition lawyers believe that if the Commission is paralysed, that would mean automatic clearance for merger deals when the deadline for blocking them expires.

But if that is good news for companies, it would not be good news for consumers and rival companies concerned about the creation of Europe-wide monopolies.

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