Re-elected Barroso faces market challenge

September 16, 2009

bozoJose Manuel Barroso promised the European Parliament that as re-elected president of the European Commission he will have more authority to fight for Europe and defend its single market against economic nationalism.

But after five years of toadying to the big member states, he will need to show more spine to enforce state aid and competition rules on Germany, Britain and France in the teeth of strong national financial or commercial interests.

The conservative former Portuguese prime minister, backed by all 27 EU governments, won an impressive absolute majority of EU lawmakers — more than the simple majority he required. That
gives him a stronger hand when facing inevitable pressure from the big boys over the carve-up of key Commission portfolios.

Recent Commission moves to query state aid to banks (such as Dutch guarantees for ING) and scrutinise public funding of auto industry rescues (Germany’s bung for Opel) are encouraging. But it remains to be seen whether Barroso, now he is no longer reliant on them for re-appointment, has the character to stand up to Angela Merkel, Nicolas Sarkozy or Gordon Brown on politically sensitive cases. In his first term, he often appeared to be a trimmer, a multilingual chameleon.

On paper, the Commission has the power to force the break-up or shrinkage of state-aided banks and prevent governments using public funds for industry to distort competition.

Barroso should start by appointing strong, independent commissioners in charge of competition and financial regulation. He must rebuff French pressure to take the policing of state aid away from the rigorous EU competition department and give it to a more indulgent super-commissioner for industry.

He cannot choose whom member states send as commissioners, but he can decide what jobs to give them. He should put the most effective survivors of his current team, Spain’s Joaquin Almunia
and Finland’s Olli Rehn, in key roles to guard the level playing field for business and improve financial regulation, without yielding to special interests or anti-capitalist overkill.

He will also need a strong economics commissioner to coordinate EU countries’ fiscal policies and structural reforms as they emerge from crisis, and gradually work towards a single European voice in international financial institutions.

Given conservative dominance of European politics, Barroso will have more centre-right commissioners and fewer socialists than in the outgoing team. Yet paradoxically the public mood is
less economically liberal, and he will face strong pressure to allow subsidies to protect jobs.

Germany’s taxpayer-funded rescue of carmaker Opel offers an early test of Barroso II’s determination to uphold EU rules.  Will he stand up to Merkel, his political patron, now that he no longer needs her backing for another term?

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