Lafontaine Rejects 'Free Enterprise' Call
By George Jones, Political Editor
Tony Blair's call for Europe to adopt the American culture of free enterprise and de-regulation was rejected yesterday by Oskar Lafontaine, the German Finance Minister.
Although Mr Lafontaine took up Mr Blair's call for Europe to learn from the United States, he claimed that the European Union should draw far different lessons from those outlined by the Prime Minister. Mr Lafontaine, who has been nicknamed "red Oskar" for his socialist views, argued that jobs would be created by stimulating the EU's economies through higher state spending and lower interest rates.
In an unscheduled address to European socialists in Milan, he said: "In 1992, when the US was heading for recession they cut their real interest rates to zero and went for a budget deficit of 4.4 per cent which allowed them to get out of the recession."
The leaders of socialist and social democratic parties from across the EU, where the Left and centre-Left govern in 13 of the 15 member states, were attending a congress to launch their manifesto for European Parliament elections to be held in June. Mr Lafontaine has led increasingly robust calls by some European finance ministers for looser interest rates in Europe to help to stimulate the economy and create jobs.
His speech was seen as a further attempt to put pressure on the European Central Bank to cut interest rates after officials indicated earlier this week that they should stay on hold across the 11-nation euro-zone. But Mr Blair made clear his belief that economic reform rather than boosting public spending in the European economies was the way to create more jobs. He said it was critical that the bank steered a "sensible course between necessary discipline to control inflation while avoiding the rocks of deflation".
He used his speech to give the strongest signal yet to his fellow EU leaders that he wanted to take Britain into the single currency. He said he was speaking as the leader of a country "that has declared its intention to join the euro in the future, provided that the conditions are right to do so". But he stressed that the euro currency was "only a foundation" and would not work unless it was accompanied by economic reform across the continent to ease the restrictions that hampered the creation of new businesses and the flexibility of labour markets.
Mr Blair urged colleagues to learn from the US and embrace enterprise, saying: "We should be the champions of small business and the self-employed as well as our traditional supporters. We must work with business and listen to business." In an echo of his own successful general election campaign in 1997, he said their theme for the coming European elections should be "jobs, jobs, jobs".
It is not the first time that Mr Lafontaine and Mr Blair have clashed over the way forward for Europe. Before Christmas, the German Finance Minister infuriated the British Government with his call for the harmonisation of taxes across the EU. His intervention yesterday was seen by Downing Street as highlighting the difference between old-style socialism he favours and Mr Blair's attempts to define a "third way" between the old Left and Right-wing free market economics.
Mr Blair told the Milan meeting that centre-Left governments in Europe could not resist change. He said: "We can't argue with the fact that US unemployment is lower, growth higher - and it's not all low-skill service jobs. The prices of their goods are often more competitive. This is not an argument to undermine the European social model. It is an argument to modernise it."
Germany's Chancellor Gerhard Schröder told the congress: "People in Europe are looking to social democratic governments to fight mass unemployment."
Antonio Guterres, Portugal's Prime Minister, who spearheaded the job creation strategy in the manifesto, alluded to ideas already floated by France's Prime Minister, Lionel Jospin, that the EU could take out big loans, perhaps through the European Investment Bank, to fund public works programmes to offset the impact of international financial crises.
[end of story]
Carl Remick