By Brian Love

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PARIS, Mar 13 (Reuters) Europe created a common currency but seems unwilling to accept one of the logical consequences -- industrial consolidation and cross-border takeovers where it's size and reach that count, not national interests.

Government hostility to German and Italian bids for France's Suez and Spain's Endesa groups suggests the birth of ''Europe Inc.'' will be harder than that of the euro and the surrender of national control over monetary policy in 1999.

''One could have expected this giant step forward to play the role of the mother of all structural reform,'' said Jean Pisani-Ferry, director of the Bruegel economic think-tank in Brussels. ''In fact, the opposite has happened.'' On top of the French and Spanish controversies, the government in Warsaw has attacked an Italian takeover of a Polish bank, which is part of a larger and long-agreed takeover of Germany's HVB group by Italy's UniCredito.

Pisani-Ferry argues that Europe's leaders took their foot off the accelerator once the euro was born and that this lack of purpose, combined with years of poor economic growth, has undermined Europe's legitimacy.

''All in all, the economic implications of the euro have been underestimated and the same can be said of the degree of political commitment it requires,'' he says.

ACT LOCAL, WORRY GLOBAL That raises the question of how an economic project can work without a political structure to foster it.

European Commission President Jose Manuel Barroso would like to think the reactions of France, Spain, Poland and others to foreign takeovers are what he calls the EU's growing pains.

The issue is arguably bigger nowadays than the limitations of the euro zone or 25-nation EU at a political level, however.

With popular concern over globalisation and security, there is fertile ground for nationalism, patriotism or protectionism.

''As economic competition increases and the pace of change accelerates, governments are trying to tighten their grip on what levers they have,'' says Katinka Barysch, an economist at the Centre for European Reform, a think-tank in London.

Companies increasingly think globally when it comes to opening a factory or where they hire labour. Transport and freight are much cheaper. China and India, the world's most populous economies, are opening and expanding at breakneck speed.

That is triggering big shifts in the location of labour and production, stretching the gap between governments who answer to national constituencies and businesses that fight it out on an international scale.

Hand-in-hand with concern over economic globalisation is the U.S. war on terror, and heightened security fears in the world.

Dubai has decided to sell U.S. port management operations which a state-owned Dubai firm was in the process of buying, after a furore among U.S. lawmakers who said this presented a threat to national security.

Objections from Capitol Hill also scuppered a Chinese bid to take over U.S. oil company Unocal a few months ago.

And China, opening up but tightly steered by the Communist Party, is increasingly breeding an economic patriotism of its own, developing homespun technology for high speed trains and mobile phones and starting to question whether it is letting foreign investors buy into its companies too easily and cheaply.

South Korea too is having doubts because of an American bid for its tobacco company.

THE ENEMY WITHIN For Barysch, Europe's anxiety over globalisation is as much about the EU's eastwards expansion to Poland and other former communist countries as about China, and the fact that the older, wealthier EU members now fear cheap competition ''from within''.

''You can put anti-dumping duties on Chinese shoes but not on Polish furniture,'' she says.

Recently, France and other countries forced the EU to gut a directive on service sector liberalisation of its most potent parts because of public fears of an invasion of workers such as Polish plumbers who might put others out of work.

That perhaps shows the extent of the fatigue plaguing the EU after enlargement in 2004 and the rejection of a new EU constitution in referendums in France and the Netherlands -- something compounded by more global changes.

Economists say anxiety over globalisation is understandable but that governments should prepare people for change rather than resist it, by providing better welfare and training to help people adapt or to change jobs.

Even before the latest phase of more visible globalisation, governments were struggling merely to agree a set of fair-play rules for corporate takeovers within EU countries.

It took 10 years to make the euro a reality after proposals floated by former European Commission President Jacques Delors.

It took about 17 years to agree EU takeover rules, and by the time they were agreed, they were so full of holes that some people wonder what difference they really make.

WHO CARES? Eric Chaney, the chief European economist at U.S. investment bank Morgan Stanley, finds the latest developments in France and Spain alarming even if he points out that political interference in business in not new.

What was perhaps most striking about the French case was the speed with which the government arranged a shotgun wedding of Gaz de France, a public utility, and Suez, a private water and energy firm, once it got wind of a takeover bid expected from Enel of Italy.

Whether it was a deal done in days, as some contend, or many weeks as the government says, it was a lightning fast response that infuriated Enel and the Italian government.

With elections next month in Italy and next year in France, politicians may seek to play up and to nationalist tendencies.

''What worries us is that politicians may be fuelling anti-market and anti-Europe forces that they do not fully control,'' he says.

Look at the facts and the figures, however, and there seems to be little reason for governments to fear that objections to one merger or other will scare off investors.

Chaney points out that France's so-called stock of incoming foreign investment is worth 41.8 per cent of GDP, higher than most EU peers including Britain, a country considered far more open.

In essence, protection or protectionism are not new, either in Europe or the rest of the world that professes openness and a joint commitment to the free market. ''Multi-lateralism is more vulnerable than it looks,'' says Pisani-Ferry.

REUTERS SD DS1446

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