LEADING ARTICLE:Portillo gets it right - partly

Michael Portillo was on the winning side of an argument in Europe yesterday. Two cheers for him, and one raspberry.

Mr Portillo and his fellow social affairs ministers from around the European Union were discussing new regulations for workers posted abroad. France and Germany want all such people to come under the rules of the state they are entering. They fear that otherwise low-wage labour from the poorer states will undercut their own workforce and cause a lowering of standards.

Mr Portillo, in common with several southern states and the European Commission, argued that this would close the door to labour mobility, not help it. A stalemate resulted.

The crux of the matter is that Europe, especially northern Europe, has developed a model of social protection of which it is justifiably proud. Now, it faces some big questions about how that protection can be maintained in a global economy where goods, services and people are increasingly mobile.

Mr Portillo earns a cheer for arguing that protectionism is not the answer. If Europe is to maintain its levels of prosperity, it needs to create an open labour market where it is easier for people to get on their Raleighs or Vespas to seek employment elsewhere. This is good economics; it is also part of the obligations inherent in the relevant EU treaty.

In the same way, maintaining high levels of social protection cannot mean locking out goods and services from overseas, which would be the impact of parallel French attempts to put social clauses into international trade agreements were any such manoeuvre to prove remotely practicable. These would penalise poorer countries unable to export into Europe. Mr Portillo resisted that, too: another cheer.

None of this means Europe should sacrifice its social ideals to the market. The point of trade, like labour laws or social security, is to increase everybody's welfare. The EU needs to champion that view, and the best way is to show that its model of capitalism works, not that it needs to shelter behind artificial barriers. Abroad, Europe can translate its economic weight into political muscle, using political persuasion and strong diplomacy, not protectionism.

Inside the EU, it is plain that only the existence of some basic common standards of social protection will give workers the confidence they need to move to jobs outside their home countries. Establishing those standards as a whole is a goal the EU is now pursuing.

That is where Mr Portillo gets the raspberry. The British government's arguments for open markets are undermined by its firm determination that there should be no social dimension. The opt-out from the social chapter of the Maastricht treaty makes the Government's case weaker; and means that all too often there is no British minister present to argue for British interests, British workers or British companies.

A balance needs to be struck on these issues. Britain, with its insistence on free markets and indifference to the social dimension, is a one-club golfer.