Barroso’s EU vision lacks levers for change

September 7, 2009

Could the European Union be among the big losers of the global financial crisis?

Despite signs that recession in Europe may be bottoming out, the 27-nation bloc risks emerging from the turmoil with its economic growth potential stunted, its public finances shackled by mountains of debt, and its international influence weakened.

That is the backdrop to Jose Manuel Barroso’s campaign for a second term as president of the executive European Commission.  In a manifesto sent to EU lawmakers last week, he warns that unless Europeans shape up to the challenge together, “Europe will become irrelevant”.

The conservative former Portuguese prime minister is  seeking a confirmation vote in the European Parliament this month, so a degree of dramatisation is to be expected. But there is no hiding the setback the crisis has dealt to European integration. Barroso has rightly put economic recovery at the top of his agenda, but he lacks powerful levers to achieve his goals at a time when the knee-jerk response in Europe has often been to revert to national economic solutions.

The recent crisis showed that there remains a strong short-term temptation to roll back the single market when times are hard, he acknowledges in the 41-page document.

Barroso is too much of a politician to name names, but he was clearly referring to the way Britain pressured state-rescued banks to lend at home and France and Germany sought to protect domestic jobs when aiding car manufacturers. Those governments deny their moves are protectionist and cite their duty to spend taxpayers’ money in the national interest. But such measures pose a threat to the principles of free movement of capital and labour and fair competition.

Barroso vows to be “an implacable defender” of the EU’s single market and its competition and state aid rules — the foundation stone of European prosperity. But he does not say how he can force governments that have rescued stricken banks to restructure and dispose of them in ways that avoid distorting the level playing field for business.

Critics say the Commission president was too deferential to the major European powers in his first five-year term. Whether he will show more independence once he no longer needs their
support for his re-election remains to be seen.

His programme calls for greater economic policy coordination especially in the euro zone, and more surveillance of national budgets by Brussels, but he does not say how the Commission can persuade big member states to accept more EU supervision. He acknowledges that some new member states in central and eastern Europe have suffered a deeper recession and drifted away from economic convergence with western Europe. But he doesn’t say how this can be fixed or offer a plan for those countries to join the euro zone in the near future.

Barroso rightly says that Europe will need to find new sources of growth with its post-crisis output potential crimped by stricter financial regulation, higher taxes, unemployment and demographic decline. The low-carbon “green economy”, building new broadband and energy super-networks, and developing personal services for an ageing population all offer potential wellsprings of growth.

But while he advocates a “root and branch reform” of the EU budget to shift resources to these new priorities, Barroso does not say how he would stop farm subsidies gobbling up 40 percent
of community spending. The common budget is anyway likely to stay pegged at 1 percent of EU gross domestic product — a fraction of national expenditure.

While the Europeans will struggle to redynamize a stagnant economy, they also face a challenge in shaping a new global order.

The EU prides itself on being a model of rules-based multinational governance, but its inability to agree on joint representation in international fora such as the G20 weakens its influence with emerging powers such as China and India, as well as with the United States. Barroso says the EU must speak with one voice at the world’s economic top table, but he has no recipe for ending the current cacophony of eight European delegations in the G20.

As the Bruegel economic think-tank said in a perceptive memo to the next Commission president, the EU needs to reform its economic governance and centralise more policy in some
fields, but there is no appetite for such reforms in the crisis.

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