Sunday 20 October 2019

Dan O'Brien: 'Brexit must not distract us from other big changes in business'

Chinese telecoms giant Huawei is viewed with growing concern in western countries
Chinese telecoms giant Huawei is viewed with growing concern in western countries
Dan O'Brien

Dan O'Brien

Your columnist spends a lot of time speaking at conferences and presenting to smaller groups on economics, policy and political matters. Often the most interesting events take place in corporate suites. Interacting with executives at the business coal face is always informative.

One such meeting last week showed that however much is going on in the world that is of relevance to business, Brexit is absorbing a huge amount of the attention for companies of all kinds.

Millions of hours that could have been spent on product development, innovating to boost productivity and finding cost savings have instead been spent on the implications of Brexit for individual firms and their clients, customers, competitors. The opportunity cost of Brexit for firms in Ireland almost certainly dwarfs the hundreds of millions of euro of taxpayers' money spent by government on preparing for it.

Brexit has also distracted businesses from other big picture issues they need to keep abreast of. Italy more than anything else - including Brexit - keeps the top people in Brussels awake at night. It could reignite the euro debt crisis at any time.

Another big risk for Europe is France. It will hold its next presidential election in three years. The incumbent, Emmanuel Macron, has shown leadership in the foreign affairs sphere and delivered real reform at home. But his support levels are tracking his predecessor Francoise Hollande who didn't even try for re-election in 2017.

The rolling insurrection in France since the end of last year - in the form of the Gilet Jaune movement - is in part a reaction to the reforms Macron has implemented.

If he cannot turn things around, either the hard right or the hard left, which are both anti-EU, could win the presidency in three years - their combined support reached 40pc in the first round of the 2017 contest.

If that were to happen there would be a rupture. As sure as night follows day a ruptured France would lead to a ruptured Europe.

A much less dramatic European issue, but one that business needs to watch, is Germany's shift towards France when it comes to a greater role for government in the economy. Traditionally, the French have advocated for a big role for the state in steering the economy and believe that history shows this approach to be successful - the global success of Airbus is often held up as an example of the sort of champion companies governments can create if they put their minds to it.

France's neighbours across the Rhine have painful memories of what happens when the state and big business get too cosy.

But while Germans have long been standard bearers of market discipline and rigorous competition in EU market constructs, foreign takeovers of significant companies and a more hostile geopolitical environment have led to rethink.

Berlin's position on supporting companies and whole industries has been shifting towards the long-held view in Paris.

Even if it would be premature to label the new Franco-German consensus as motivated by protectionism, this new consensus raises issues that businesses and consumers, particularly ones in the European periphery, need to be alive to. Another issue of relevance to many businesses is the main fear driving the new interventionism - China. Europe's stance on that country has undergone a major change in a short time.

Earlier this month the EU's diplomatic service declared the rising Asian superpower a "strategic rival". French president Macron has declared that Europe's era of naivete towards China has ended.

Xi Jinping, his Chinese counterpart visited Paris last week, with an entourage in tow similar to the ones US presidents bring on foreign trips (these optics are not accidental).

What was originally set up as a bilateral meeting between the two presidents morphed into something different.

Macron invited along his German counterpart, Angela Merkel, and the European Commission president, Jean Claude Junker, to demonstrate Europe unity.

Europeans have been talking about a "strategic partnership" with China for many years.

It was neither strategic nor a partnership.

China's interest in the EU as a partner waned after the euro crisis.

Indeed, it saw the weaknesses - economic and political - of that period as an opportunity to increase its influence in Europe via individual countries. It did this most notably by making (much-needed) investments in vital infrastructure in crisis-hit countries, including Greece and Portugal.

Half a decade ago that was not looked at askance by the continent's power players. Today, all has changed and Chinese investment in Europe has led to the introduction of a new screening framework at EU level which will prevent foreign takeovers if they are deemed a security threat.

Other security concerns around China have also contributed to the changed stance towards the rising power. Huawei, the Chinese telecoms giant with a significant presence in Ireland, is viewed with growing concern in western countries.

The world is changing fast. Brexit is vital for Ireland, but it should not distract from changes afoot further afield that will have consequences for the business environment here.

Sunday Indo Business

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