Schröder Slams EU's Service Sector Plan

German Chancellor Gerhard Schröder on Thursday added his voice to the growing chorus of critics of the European Union's so-called "Bolkestein Directive" aimed at de-regulating the services sector in the bloc's 25 member states.

Taking the lead from France -- where President Jacques Chirac restated his outright opposition to the proposals just two days ago -- and swimming on the tide of general unease among the German population towards the eastwards expansion of the EU, Schröder said that he too was against any initiative that might lead to "social dumping" in Europe's services sector.

"I fully agree with President Chirac, we can't allow freedom in services to open the door to social dumping and to the disregard of safety standards in Germany" and in Europe, Schröder said in a keynote speech to the lower house of German parliament, the Bundestag.

"We don't only need law and order in the interior, we also need law and order on the labour market," the chancellor said.

Under the so-called Bolkestein Directive, named after the former EU Commissioner Frits Bolkestein who penned it, companies offering services throughout the 25 member states will be allowed to operate under the laws and regulations of their country of origin.

Companies would not have to pay local rate

In concrete terms, companies -- from butchers to hairdressers and construction firms -- from countries with lower taxes and fewer social regulations, notably in Eastern Europe, will be able to operate in higher-cost economies, but without being forced to pay their workers at the local rates.

The supporters of the directive argue that such reforms are necessary if Europe is to have a truly free market and wants to achieve its long-held dream of becoming as dynamic an economy as the United States.

But France and Germany, in particular, are up in arms over the proposals, with politicians, professional guilds and unions alike claiming they would place French and German companies at a disadvantage to rivals from new EU members in Eastern Europe. The proposals would undermine sector-wide wage agreements and labour safety legislation, the critics argue.

Concern over Germans being undercut

With unemployment in Germany currently at a post-war high point of 5.2 million or 12.6 percent of the workforce, opponents argue that allowing eastern European companies to undercut their western rivals with cheap labour will inevitably lead to even longer dole queues at home.

In face of such arguments, Chancellor Schröder recently dropped his previous tacit support of the directive to suggest that the text should not only be amended, "but replaced by a new one".

The head of the EU Commission, Jose Manuel Barroso, specifically defended the country-of-origin rule on Monday, accusing the directive's critics of refusing to accept the consequences of EU enlargement.

"Some people think the European Commission is there to protect the 15 against the new 10 -- it is not," he said. "It is there to promote the general interest of Europe."

Chirac bangs the drum

But French president Chirac hammered home his objections again on Tuesday, saying "the draft directive on services is unacceptable to France and to other European partners and should be thoroughly reviewed."

Chirac insisted that Brussels must abide by its pledge to revise the text of the directive so that consensus could be reached. "Europe means the protection of social rights, it means fair conditions for competition, it means the development of public services and respect for cultural diversity," Chirac said. In France the proposal is being used as an argument by people opposed to the European constitution.

While not officially on the agenda of the upcoming EU summit in Brussels next week, the issue will almost certainly be discussed by EU leaders there.