No reason has been given for the refusal, but I can hardly see how it can be a positive sign for the Sri Lanka situation.

Norway’s role as peace broker in Sri Lanka seems pretty much played out after Norwegian police failed to prevent damage to the Sri Lankan embassy in Oslo on the hands of Tamil protesters. The Sri Lankan government has reputedly declared Norway unwanted in the process.

But according to Swedish foreign minister Carl Bildt’s blog, he is going to Sri Lanka to try and handle the humanitarian situation – together with French foreign minister Bernard Kouchner and their British counterpart David Milliband. It’s a real show of force from EU to apply pressure on the parts of the conflict to refrain from further bloodshed. It may also be a sign that the EU is really serious about its role as a global peace broker with  a different focus than that of the US.

The Tamil Tigers (LTTE) have according to various media already asked for a cease fire, but the Sri Lankan government has rejected it, demanding a complete surrender.

But as multiple people have blogged, this isn’t just a matter of the infamous tight-fistedness of Germany’s fiscal and monetary policy, born out of the ashes of Weimar; it’s genuinely harder for Europe to run a stimulative policy.  For one thing, they can’t coordinate a broad European policy, which means that any government will see substantial amount of any stimulus “leak” abroad–and also that there is great temptation to free ride.  For another, they aren’t the world reserve currency, so they can’t borrow on the same lavish, practically interest-free scale as the US Treasury.

I think she’s right on this one. The nature of the EU, especially after introduction of the Euro, is fiscal conservatism on the European level. It is the first time in EU history that intervention in fiscal policy on this scale is even a topic of discussion, and it’s clear that the member states with the biggest needs are the one with the least means – Eastern Europe. On the state level there is the freeloader problem to contend with – a side effect of the common market. It is hard for a government within a common market and a monetary union to spend taxpayers’ money without being able to guarantee that those taxpayers will benefit in terms of jobs at home. No single state wants to take the initiative without being sure the others will split the bill, so to speak. All of this is quite consistent with Le Maire’s and Sarkozy’s focus on pushing for international solutions. One could argue that the issue of “leaks” abroad is just as bad for the US, but it does have a different tradition from especially France and Germany when it comes to taking the position as world leader and accepting that “what is good for the world economy is good for the United States.”

[...]so I am not in favour of protectionism, as I just said, I am just in favour of European measures – measures decided at the European level – that would prove to our citizens that we are taking into account their fears and worries and that we are trying to protect our European economy, that we are trying to protect our industries. This is a very difficult balance we have to find, but this is not protectionism. Protectionism means today that the UK would take some very concrete measures just to protect one of its plants, in New Hampshire for example, or London. Or that France would take some very national measures just to protect one of its industries or one of its plants in Normandie or the south of France without taking into account the interest of the UK and Germany and Spain and Italy. That’s the difference between the two ways of protectin industries and protecting our economies[...]

I just give a concrete example. The concrete example that is to me the best example of what we need today, si the automotive industry. If we don’t take any kind of measure to support the automotive industry in France, the UK, and also in Italy with Fiat, the automotive industry in Europe will disappear in a few months, or let’s say in two years. Just because the US on their side, has decided to give more than twenty-five billion dollars to General Motors, in direct help to General Motors: Twenty-five billion dollars. If we just say that’s a problem with the US. They should not give twenty-five billion dollars to the GM, that’s unacceptable and I’m not happy with that measure. If we just say this, letting our automotive industry die in a few months, I can assure you we run the risk of having very big political troubles in a few months or a few weeks.

That is why we need to support our automotive industry, even if it is not allowed by the Commission to day, we have to find the right balance, but we have to support our automotive industry. That is really the line we need to draw between saving our industries, doing our best so that no industry disappears in the coming months and doing things that would only mean that we are attached, and that we are in favour of protectionism.

I know the difference is very hard to see and that the line is very hard to draw, but this is the difference between protectionism as such and defending our industry.

You are quite right, Mr. Le Mair. The difference is difficult to see. In fact, what you’re describing sounds like the definition of a trade war. Or was the difference that measures to protect EU industries from US competition is not protectionism since it allows intra-EU competition? A trade war over automobiles between the EU and the US is for some reason not the same as a trade war between the US and France?

Domestic political pressures seems to have politicians grasping at straws and scrambling towards protectionist measures. That doesn’t seem like a good way for the world economy to pull itself out of the pinch it’s in.

The spectacular collapse of some of the post-communist tiger economies led to demands at an EU summit in Brussels for a rescue fund of €190 billion (£170 billion) to stop social collapse in the Eastern nations spilling over into the rest of Europe.

The plea, led by Hungary, was rejected in a bad-tempered meeting of the 27 European leaders, dominated by fears that Western EU countries would rather prop up their own large industries and jobs at the expense of the East.

Ferenc Gyurcsany, the Hungarian leader, openly raised the spectre of collapse in Eastern Europe and the creation of a new Iron Curtain.

“Central Europe’s refinancing needs in 2009 could total €300 billion, 30 per cent of the region’s GDP,” he said in a paper calling for a fund of €160 billion to €190 billion to be set up by the richer EU members.

“A significant crisis in Eastern Europe would trigger political tensions and immigration pressures. With a Central and Eastern European population of 350 million, of which 100 million are in the EU, a 10 per cent increase in unemployment would lead to at least five million unemployed people within the EU.” (timesonline.co.uk)

Yahoo! News doesn’t have quite the same bleak outlook:

However, EU leaders opted instead for a case-by-case approach to helping troubled countries in the region “on the basis of all available instruments,” according to a statement issued after the summit.

“This idea of dividing up into old member state countries, eurozone countries, non-eurozone countries, north against south, or east against west, that is clearly an approach we rejected,” said.

European Commission President Jose Manuel Barroso said it was the eastern European countries that had said “they do not want a programme just for them.” as “there is a great diversity of situations.” (news.yahoo.com)

So, the EU family has either let its poor eastern brothers out to dry, or it is just about to implement case-by-case help packages. If no action is taken at all, it could become a massive problem for the EU as the crisis is likely to spill over into the political sphere. Not only should we expect to see much less public support for the union, but also, as Professor Nouriel Robini writes:

Deeply unpopular austerity measures, including slashed public wages, tax hikes and curbs on social spending will keep fanning public discontent in the Baltic states, Hungary and Romania. Dissatisfaction linked to the economic woes will be amplified in the countries where governments have been weakened by high-profile corruption and fraud scandals (Latvia, Lithuania, Hungary, Romania and Bulgaria).

The political forces most likely to benefit from public disaffection are those running on populist platforms, which could disrupt efforts to battle the effects of the economic crisis. Latvia could be a case in point, as there are growing concerns that the coming election campaign might suspend the fiscal austerity measures required by the IMF bail-out package. Two other political hot spots that are at risk of early elections are Romania and Estonia, while Bulgarian national elections are due in mid-2009.

In sum, the crisis could put the E.U.’s free market rules under pressure. A big rise in support for populist and radical parties in the region could put social, structural and environmental reforms on hold and even call into question the economic and political model Eastern European countries have followed since the 1990s. (Forbes.com)

And should this come true, the EU is in great trouble. I have been a EU sceptic for quite a while, at least as far as Norwegian membership is concerned. But as much as I might dislike some aspects of the EU, I don’t want to see a massive economic downturn spreading all over Europe.