Thousands protest ahead of 'Polish plumber' vote

Tens of thousands of protesters jammed the streets of Strasbourg as the fate of the law at the heart of the EU's economic reform plans prompted fierce last-minute wrangling.

MEPs were holding tense talks ahead of a crucial vote tomorrow on the proposed so-called services directive, which prompted fears in France of an invasion of Polish plumbers. Although the measure is certain to be watered down, the precise outcome of the vote on more than 400 amendments in the European Parliament will be seen as a yardstick of the EU's commitment to economic reform.

It is also a chance for the parliament to extend its influence since, if it delivers a large majority in favour of a compromise, it will be hard for member states or the European Commission to overturn it.

The row in France over the services directive was widely blamed for contributing to the country's "no" vote in a referendum on the EU constitution. Since then, law-makers have remained divided over the future of the EU's efforts to open up the multibillion- euro market in services.

Negotiators in the two main political blocs have already agreed to water down the text of the draft law which prompted last year's ructions. Last night, they were trying to sell these amendments to their respective MEPs.

French Socialist MEPs were among those still worried that the planned law goes too far in liberalising services, while centre-right MEPs from the eastern member states remained concerned that the measure has been watered down too much.

As MEPs debated the measure, a sea of red and white filled the streets as marchers held up union banners and flags to protest against the legislation. Police said 30,000 people took to the streets in a good-natured protest, though the European Trade Union Confederation said more than 50,000 joined the march.

Meanwhile, six countries that champion economic reform - including the UK, the Netherlands, Spain and Poland - have written to the European Commission, expressing fears that the text will be diluted.

Services dominate the EU economy, accounting for two-thirds of the bloc's economic output. Last year, 116 million people - nearly 70 per cent of the EU's active workforce - were employed in the sector.

But firms still face major obstacles when trying to set up in another EU country - restrictions the legislation aims to sweep away. For example, an operator taking German tourists to Venice would run into trouble with an Italian law that obliges tour guides to speak Italian.

The outline deal struck by the parliament's two blocs last week would remove the controversial "country of origin" principle enshrined in the original version of the directive. That would have meant a firm could operate in any of the EU's 25 member states, as long as it abided by the rules in its home country .

That concession delighted the European trades unions, who have backed the latest blueprint in principle. But centre-right MEPs were pressing to remove one of the grounds on which national governments would be able to erect barriers against foreign firms.

They wanted to strike out the right of governments to impose policy on the grounds of "social" and "consumer policy" - something seen as too much of a catch-all phrase giving protectionist member states carte blanche.

José Manuel Barroso, president of the European Commission, described tomorrow's vote as a "crucial step" for European "growth and employment strategy". He believes that, although the measure has been diluted, its adoption would send a positive signal, particularly after a plan to liberalise European ports was thrown out by MEPs.

"Losing the ports directive was unfortunate, to lose a second measure would be distinctly careless," said one commission source.

Areas that would definitely be covered by the latest draft of the services directive include catering, advertising, architecture, construction, accountancy, hairdressing and IT.

Symbol of a European battleground

Why is the services directive so sensitive?

During last year's French referendum on the EU constitution it became a symbol of Anglo-Saxon liberal economics while protectionist critics played on fears of the arrival of hordes of Polish plumbers. The draft law has come to symbolise the battleground between economic reform and the protection of standards for workers under the European social model.

Why do its supporters believe it is so important?

Services make up more than 60 per cent of the EU economy, and reformers say that barriers to cross-border services are stifling growth. The European Commission sees the draft law as a way to free up competition in a host of sectors, from architecture and computer consultancy to catering and plumbing. It has argued that the measure could generate 600,000 new jobs and add 1 to 3 per cent to economic output.

Why were there objections to it?

Unions feared that this would favour companies from countries with more lenient labour laws, less consumer protection and lower wages - in particular the eight former Communist states that joined the EU in 2004. These could trigger "social dumping" by undercutting rivals in states with more regulation. John Monks, general secretary of the European Trades Union Confederation, described the principle as "a gun to start the race to the bottom" in terms of social standards.

What is the country of origin principle?

This clause was in an earlier draft of the directive and would have ensured that companies could use the rules of their home country when setting up in another EU nation. It will not now be included.

Will this mean a new flood of foreign workers into the UK and other nations?

The UK opened its labour market to the EU's new states in 2004, so the biggest change has already taken place. This measure aims to remove barriers to many European firms operating across borders. If it works it would mean more foreign companies, and therefore workers, operating in the UK. But it would also mean more opportunities for British companies in other states.

What will the liberalisation apply to now?

In general it will oblige member states to remove barriers to competition. But the areas to be exempted will be voted on by MEPs tomorrow. Some sectors to be covered include construction, accountancy, architecture, hotel management, car hire, hairdressing and information technology. More sensitive services such as health care would not be opened up. But one battle ground is over social services; another is over conditions on running services such as water and electricity.