Trade Liberalization Grudge Match, 2008

Story Highlights:

• With France taking over the rotating EU presidency, Nicolas Sarkozy is battling the EU's trade commissioner over Europe's approach to the world trade talks.
• Sarkozy wants protectionism; Commissioner Mandelson wants freer trade.
• Protectionism is always a threat to markets, but this likely has little chance of materializing.

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Europe's heating up these days and not just over Euro 2008. There's also the half-dead Lisbon Treaty, fears of inflation and slowing economies, and the most urgent issue this month: The do-or-die status of the world trade talks, soon reconvening in Geneva.

Sarkozy Stirs Revolt Against Mandelson
By John Lichfield, The Independent

With France assuming the rotating EU presidency, the Thrilla in Geneva may be the great bout of 2008—worthy of all the theatrics surrounding a grudge match at the MGM Grand. In the red corner is Nicolas Sarkozy: French president, lover of subsidies and trade barriers. In the blue corner is Peter Mandelson: EU Trade Commissioner, champion of free trade and supply-side economics. Sarkozy wants to mollify his constituents by "protecting" Continental economic interests; Mandelson wants increased global wealth and prosperous developing countries.

The tiff began last month, when Sarkozy blamed Mandelson's free trade policies for Ireland rejecting the Lisbon Treaty. Now, Sarkozy is calling an emergency meeting of EU foreign ministers before the Geneva trade talks—an attempt to block what he calls "the Mandelson approach." Sarkozy is tired of "concessions" on European agriculture in favor of developing countries, and he wants to rally Europe against limiting agricultural subsidies and lowering food import barriers. The world trade talks are already on shaky ground; Sarkozy's meeting threatens to further derail progress. Everyone agrees reaching a deal before President Bush leaves office is vital, which makes this month, as Gordon Brown put it, "one minute to midnight."

But why care about bickering EU factions? Because increased international trade is a net global economic positive, whereas a breakdown might have negative global economic consequences. Equally disruptive, especially for stocks, would be a move to outright protectionism. Stocks hate trade barriers.

Thankfully for the markets, Sarkozy will likely be unable to change the EU's trade approach. Most EU leaders, particularly Brown and Angela Merkel, staunchly support free trade, and Mandelson can ultimately negotiate with the world as he sees fit. And he believes a deal is possible, so there's cautious optimism for a new era of freer global trade—and hope protectionist threats are all talk, no action.

But the trade debate is simply one of many items on Sarkozy's ambitious agenda. Though France itself technically assumed the rotating EU presidency, Sarkozy still calls himself "president of Europe," positioning himself as a unifying force for European change. Along with his trade antics, he's pressing the ECB to lower interest rates and investigating "what went wrong" when Ireland rejected the Lisbon Treaty. (For more, see our 6/13/08 cover story, "Orwell's Words Proved Wise?")

Whether in America, France, or the entire EU, politicians are the same—and markets generally abhor trade barriers, regulation, and other aggressive legislative intervention. But despite this uncertainty and Sarkozy's protectionist and regulatory leanings, we can still take heart: There's little chance of much change during his term.

Can Sarkozy Save Europe?
By Staff, The Economist

EU member states are notoriously gridlocked, making reform difficult. Sarkozy may have married a supermodel, but similarly unlikely feats in Continental politics will probably be few and far between. Even prizefighters with stunning wives don't win every bout.