Negotiations to save the planet from catastrophic climate change are heading for trouble, five weeks before a crucial U.N. conference in Copenhagen.

The European Union has been at the forefront in pressing for binding, internationally monitored reductions in greenhouse gas emissions, and funding from industrialised countries to help developing nations switch to clean energy.

"We can now look the rest of the world in the eyes and say 'we have done our job. We are ready for Copenhagen'," European Commission President Jose Manuel Barroso boasted last Friday after EU leaders papered over their differences over how to finance climate protection in the developing world.

Even in Europe, which last year adopted ambitious goals to cut its own output of carbon dioxide by at least 20 percent by 2020, there are signs of climate fatigue setting in.

This is partly because the Europeans have raised unrealistic expectations of a global treaty to replace the Kyoto protocol on climate change when it expires in 2012. The United States never ratified or implemented the 1997 Kyoto deal, nor did the main emerging countries.

The unresolved struggle in the U.S. Congress over a climate bill, and the reluctance of China and India to accept binding international curbs on carbon emissions mean the most that can be expected in Copenhagen is a political agreement based mostly on voluntary national pledges. Even that is uncertain. So the EU risks being stranded on its own moral high ground.

Last week's wrangle among the 27 EU leaders over how to share the cost of helping poorer states fight global warming was a foretaste of the likely discord in the 193-nation U.N. negotiations from Dec. 7-18.

The leaders agreed that it would cost about 100 billion euros a year by 2020 to help developing nations reduce carbon emissions, and that up to half of that sum would have to come from public money mostly from the industrialised world. But when it came to deciding who would pay how much within the EU, they stalled because of Europe's own wealth gap.

Poland led a cluster of nine ex-communist central and east European states that contend they cannot afford to contribute in proportion to their emissions, which are high due to a dependency on coal-fired power stations. They demanded that the EU apportion the burden based on national income instead.

That would leave wealthier west European states such as Germany, Britain and France bearing more of the cost. Unable to resolve the dispute, the EU created a working group to examine members' "ability to pay".

The Germans, the EU's biggest paymasters, are worried that Europe is seen as a soft touch. Chancellor Angela Merkel opposed putting a firm figure for EU climate aid on the table at this stage but said the Europeans would have to pay about one-third of the cost of public financing if there is a deal in Copenhagen. Many in Berlin feel that Europe has made enough concessions up-front and that it is time for the other major players -- particularly the United States, China and India -- to move.

There is also some concern that the U.S. Congress, struggling to enact a cap-and-trade system for carbon emissions, will take fright at European estimates of the scale of international financing required to pay for a global deal. The Obama administration has requested only $1.2 billion to fund climate mitigation efforts overseas, while the EU estimate implies a cost of at least 10 times that much.

The Europeans papered over another internal dispute over how to shield energy-guzzling industries such as chemicals, glass, concrete and steel from unfair competition from countries that do not curb carbon emissions.

The EU has agreed in principle to hand out free carbon allowances to those energy-intensive sectors exposed to global competition, instead of making them buy pollution permits at auction, in the absence of a comprehensive climate deal. But France has led calls for Europe to go further and levy a carbon tariff on imports from states with lower environmental standards -- a move which EU critics such as Britain and Sweden see as protectionist.

So, if the Europeans cannot agree among themselves on how to share the burden, what hope is there for reaching a global accord at the UN summit?

Who will be the first president of the European Council of EU leaders? Anyone but Tony Blair. That is the only clear message to emerge from a European Union summit, where the appointments of the EU's two new senior office-holders is not on the agenda but is on everyone's mind.

The appointment process is typical of the surreal way in which the 27-nation bloc does business. The job is poorly defined in the Lisbon treaty reforming the EU's institutions, which is expected to come into force in the next few weeks.  But it is clear that most leaders are looking for a consensus-building summit chairman rather than a high-profile president of Europe.

There are no officially declared candidates. But Blair has been the front-runner for months, with the public backing of French President Nicolas Sarkozy and of the British government. He was not in Brussels on Thursday, but his name was at the centre of debate in the summit corridors, with many people determined to kill his phantom candidacy off.

Before the summit began, his erstwhile European Socialist comrades agreed, according to Spanish Prime Minister Jose Luis Rodriguez Zapatero, that they would prefer the EU foreign policy chief job to go to a socialist. That effectively ruled out the presidency for Blair, since the Socialists have no chance of getting both jobs.

Veteran Luxembourg Prime Minister Jean-Claude Juncker meanwhile announced he is available for the top post even though he acknowledged he had little chance of getting it. Juncker's kamikaze candidacy looks like a suicide mission to blow Blair out of the race. The two have been engaged in a long personal vendetta fuelled by Blair's blocking of Belgian Prime Minister Guy Verhofstadt's bid for the European Commission presidency in 2004, and his veto of an EU budget deal brokered by Juncker in 2005.

In British eyes, Juncker personfies "old Europe" -- a federalist from a tiny country which prospers as a sort of giant safe-deposit box at the heart of a Franco-German Europe. For Juncker, Blair embodies London's arrogant detachment from the EU. Despite his pro-European rhetoric, the founder of New Labour never brought his country into the euro single currency or the Schengen zone of passport-free travel in 10 years in power. "This is not about personal glory or an extended ego trip," Juncker told the daily Luxembourg Wort in a clear swipe at Blair's undeclared bid.

The likelihood is that neither Blair nor Juncker will find broad enough support among EU leaders, effectively cancelling each other out. That will open the way for a more consensual, insipid figure without either Blair's globe-trotting stardom or Juncker's federalist outlook. Several such potential candidates were preeening themselves at the summit.

Dutch Prime Minister Jan-Peter Balkenende, a centre-right Harry Potter look-alike devoid of charisma, was doing his best to charm Sarkozy and Merkel during the public photo opportunities. French Prime Minister Francois Fillon, whose second-fiddle role to Sarkozy means he rarely attends EU summits, was seated beaming in the limelight at the summit table in place of the French foreign minister.

Away from the summit, former Finnish Prime Minister Paavo Lipponen published a timely article in the Financial Times saying the president's job should be about interrnal consensus-building rather than external representation (in other words -- "me, not Blair"). The Baltic prime ministers agreed to seeksupport for former Latvian President Vaira Vike-Freiberga as EU president.

In reality, the choice is likely to boil down to one of a handful of leaders sitting in the room. My money is on Balkenende as the grey man with the fewest sworn enemies. Under his premiership, the Netherlands has turned increasingly Eurosceptical and voted against ratifying the EU constitution in a referendum in 2005. But unlike Britain, it is a full member of all EU policies.

That may seem a pretty thin qualification to be the first president of the European Council,  but curiously, no one in Brussels seems to hold Dutch Euroscepticism against Balkenende the way they hold British Euroscepticism against Blair.

The EU show is back on the road. Sixteen months after Irish voters brought the European Union's tortured process of institutional reform to a juddering halt by voting "No" to the Lisbon treaty, the same electorate has turned out in larger numbers to say "Yes" by a two-thirds majority.

This is an immense relief for the EU's leadership. After three lost referendums in France, the Netherlands and Ireland, and a record low turnout in this year's European Parliament elections, the democratic legitimacy of the European integration process was increasingly open to question. The Irish vote will not completely silence those doubts. Opponents are already accusing the EU of have bullied the Irish into voting again on the same text, and of blackmailing them with economic disaster if they did not vote the right way this time.

Try this for size from a British Euro-sceptic, Lorraine Mullally of the Open Europe think-tank:

This is a sad day for democracy in Europe.  The Lisbon Treaty transfers huge new powers to the EU and away from ordinary people and national parliaments.  EU elites will be popping the champagne and slapping each other on the back for managing to bully Ireland in to reversing its first verdict on this undemocratic Treaty. But most ordinary people around Europe will not welcome this news, as they were never given a chance to have their say on the Treaty.  We should all be deeply worried about the way in which EU leaders have gone about forcing this Treaty on us.  Polls show that the majority of people across Europe want to be consulted on major transfers of power such as this - but politicians in Brussels aren't interested in what the people want.

The fact that the turnout in Ireland was higher, and the majority larger than in the first referendum may blunt such arguments. But EU leaders will clearly learn one key lesson from the Irish precedent: the days of grand treaties on ever closer European union are over. With unanimous ratification by 27 member states required, the probability of at least one country rejecting change is just too high.

For better or worse, the Lisbon treaty will be Europe's rulebook for a generation. I reckon there won't be another major overhaul of EU institutions for 20 years. Any further integration will take the form either of closer cooperation among groups of like-minded countries on issues such as defence, justice or taxation, or perhaps of limited, specialised treaties on policy areas such as energy and climate change.

The Lisbon treaty, and its predecessor, the defunct EU constitution, were never the federalist blueprints that their opponents claimed. But Lisbon does offer he prospect of somewhat more efficient leadership and decision-making in an enlarged Union. More decisions will be taken by majority vote instead of unanimity, notably on justice and home affairs. The directly elected European Parliament will have power over more legislation. And national parliaments will have a better chance to scrutinise, and send back, EU legislation.

A new long-term president of the European Council of EU leaders and a foreign policy chief at the head of a 5,000-strong diplomatic service and an 8-billion-euro budget will give Europe a higher profile on the international stage. But whether the Europeans become bigger global players hinges largely on their political will to think and act strategically, and to risk involvement in trouble spots and crises. To judge from their disjointed efforts in Afghanistan, that is still a tall order.

Europe's effectiveness will also depend on the personalities chosen to fill the big jobs. These appointments are traditionally stitched up in backroom deals between EU leaders in compromises between large and small states, northern and southern (and now also eastern) Europe, and between left and right. Of course Europe needs political balance. But it also needs strong, inspiring leadership.

If the first president of the European Council is a figure of international stature, with charisma and a successful track record in government, he or she will give the EU a bigger place in the emerging new world order. Ditto for the foreign policy chief. It is depressing to hear some officials say their prime ministers want weak personalities who won't overshadow them.

The next few weeks until the EU's October 29-30 summit will be dominated by speculation about who will get which job. When you hear the names of Tony Blair, Jan-Peter Balkenende, Paavo Lipponen, Bernard Kouchner, Carl Bildt, Olli Rehn, Michel Barnier or Hubert Vedrine, ask yourself one question: who will do the best job for Europe, giving the EU the most credible profile around the world and with its own citizens.

Germans have voted for change. A centre-right government with a clear parliamentary majority will replace the ungainly grand coalition of conservatives and Social Democrats that ran Europe's biggest economy for the last four years.

This should mean an end to "steady as she goes" lowest common denominator policies, and at least some reform of the country's tax and welfare system. The liberal Free Democrats, who recorded their best ever result with around 14.7 percent, will try to pull the new government towards tax cuts, health care reform, a reduction in welfare spending and a loosening of job protection in small business.

Conservative Chancellor Angela Merkel, a cautious centrist, made clear in her first post-election comments that she she would not allow a radical lurch to the right. She promised to be the "chancellor of all Germans" -- old and young, entrepreneurs and workers -- and said the conseravtives would be sufficiently dominant in the new coalition to prevail "in questions that affect social balance".

The new government faces tough economic challenges in what is bound to be a more polarised political atmosphere, with the Social Democrats in opposition. The economy is expected to contract by at least 5 percent this year, and export-led growth is likely to return only slowly. Unemployment is set to explode in the coming months as short-time work schemes run out. The budget deficit is set to top 6 percent of gross domestic product next year, more than twice the EU limit. So 2010 will be an extremely difficult year. But there are some problems that are even more urgent.

The first big choice involves Germany's ailing banks. Outgoing Finance Minister Peer Steinbrueck admitted last week that the public-owned regional Landesbanks "continue to pose an enormous systemic risk to our market". The outgoing parliament passed a virtually useless "bad bank" law meant to encourage stricken financial institutions to put their toxic assets into state-guaranteed special purpose vehicles. The banks have so far spurned the system because it leaves the risk of losses with them rather than with the taxpayer.

Merkel and her new partners need to amend the law so that the state takes more of the risk, otherwise Germany faces a future of "zombie" banks that are too burdened with liabilities to lend to the real economy. That won't be popular, with the left bound to claim that taxpayers are being forced to bail out wealthy bankers.

Fixing the banks is more urgent than cutting taxes or curbing public spending to revive the economy. That also means merging the Landesbanks, shrinking their activities and privatising as much as possible. The Germans must also be ready to allow healthy foreign banks to buy up sickly German ones. That is the logic of the European single market, to which a centre-right government is likely to be more committed.

That brings us to the next urgent priority. The new Berlin government should reconsider the dodgy deal it clinched on the eve of the election to rescue the ailing Opel auto manufacturer. Germany promised billions of euros in state aid for a consortium of car parts maker Magna and Russia's Sberbank to take over General Motors' European arm in order to preserve four production sites and as many jobs as possible in Germany.

The European Commission has made clear that "bribing" companies to skew restructuring plans according to national interests breaches EU rules. Merkel should seize the opportunity to seek a deal with other countries with Opel and Vauxhall production sites to co-fund a restructing plan along strictly commercial lines. In the longer term, Opel will need a bigger industrial partner to achieve critical mass in the inevitable consolidation of European auto sector.

Fixing the banks and Opel will be the first two tests of whether Germany gets the change it needs. Tax cuts and welfare reform will take longer and be trickier, especially given the burgeoning budget deficit and debt mountain.

No longer just a hopeless cause for anti-capitalist activists, the idea of a global tax on financial transactions is gaining ground in Europe.

European Union leaders could not agree to put it on the agenda of this week's G20 summit on reforming the financial system in Pittsburgh, but the leaders of France, Germany and the European Commission endorsed the concept.

More strikingly, the head of Britain's Financial Services Authority, which regulates the world's second biggest banking centre, said last month that such a levy could help shrink a swollen financial sector.

"...If increased capital requirements are insufficient I am happy to consider taxes on financial transactions -- Tobin taxes," FSA chairman Adair Turner told Prospect magazine.

Nobel prize-winning U.S. economist James Tobin first proposed a small levy on currency trading in 1972 to penalise short-term speculation after the United States abandoned the gold standard and floated the dollar.

His idea found no takers then and lay dormant until the French-based anti-globalisation movement ATTAC (the Association for the Taxation of Financial Transactions for the Aid of Citizens) began campaigning for it in the mid-1990s.

In the meantime, the scope of the proposed tax, the policy objective and the proposed beneficiaries had changed.

French Foreign Minister Bernard Kouchner says he and British Foreign Secretary David Miliband have agreed to work on a proposal for an "international financial contribution" to fund development assistance. He estimated a voluntary contribution of just 0.005 percent on financial transactions
would raise 30 billion euros ($44.10 billion) a year.

Many key details remain to be worked out, such as who would receive and allocate the revenue and for what projects.  A plan will be put to a meeting of 58 nations in Paris next month to discuss innovative financing to meet the United Nations Millennium Development Goals. These involve eradicating
extreme poverty, hunger and disease, promoting gender equality,  health, education and clean water, and reducing child mortality.

Germany's Social Democrats, junior partners in Chancellor Angela Merkel's Grand Coalition which faces a general election next Sunday, say the proceeds of a Tobin tax should go to meet the costs of bailing out banks in the global financial crisis.

Don't hold your breath. Agreement on such a tax is anything but imminent. Merkel, a political conservative, said it would only be feasible if all the world's main financial centres agreed to levy it, and there is no sign that the United States is remotely interested.

Her support sounded like lip service, echoing widespread indignation among German voters at U.S. and British financial capitalism, which their leaders have blamed for the crisis.

Critics of the Tobin tax, including the banking and business lobbies, argue that a levy on financial transactions would drive business offshore, reduce trading volumes and liquidity, hit employment in the financial sector, harm shareholders and slow the world economy. They also say it would be hard to collect and easy to evade.

A lot of this is specious special pleading. Of course banks don't want to be taxed on lucrative high frequency trading. But  there is no inherent reason why there should be a tax on buying a car but not on buying a derivatives contract. No one seriously argues that you can't tax cars for fear of killing
jobs or driving the auto industry to Singapore or the Cayman Islands.

Moreover, it is hard to see why a fractional tax rate of 5 cents on every $1,000 would seriously impair liquidity. Britain has long charged stamp duty on share and real estate transactions, while the United States funds its regulators through a tiny levy on transactions.

The FSA's Turner argues that diminishing the turnover of the financial sector would be a worthwhile objective in itself to reduce the amount of "socially useless activity".

Perhaps the most salient criticism is that a Tobin tax would do little or nothing to deter risky financial engineering and excessive leverage. That is not its purpose.

With Western governments facing huge budget deficits and debt mountains due to the crisis, the funds available to help the poorest countries are bound to shrink unless new revenue sources are tapped. Taxing financial speculation is surely more appealing than raising taxes on income or labour.

After just six weeks as NATO secretary-general, Anders Fogh Rasmussen has his first crisis. The alliance may be slowly bleeding in an intractable war in Afghanistan, but the immediate cause is the U.S. administration's decision to shelve a planned missile shield due to have been built in Poland and the Czech Republic.

The shield, energetically promoted by former President George W. Bush, was designed to intercept a small number of missiles fired by Iran or some other "rogue state". But Russia saw it as a threat to its own nuclear deterrent and NATO's new east European members saw it as a useful deterrent against Russian bullying, by putting U.S. strategic assets on their soil.

President Barack Obama's decision to drop plans to install it on Polish and Czech territory leaves those former Soviet satellites feeling betrayed -- because they expended political capital to win parliamentary support -- and more exposed to a resurgent Russia, especially after its use of force against Georgia last year.

Obama's move is clearly part of a warming of U.S. relations with Moscow from which Washington hopes to gain help in return on supply routes to Afghanistan, pressure on Iran to rein in its nuclear programme, and an agreement on radical cuts in nuclear arsenals. But this "reset" of U.S.-Russian relations has only exacerbated the rift within NATO over Russia.

The three Baltic states and Poland were particularly critical of NATO's low-key response to Moscow's military action in Georgia. Some said the refusal of west European allies led by Germany and France to agree at a NATO summit last year to putting Georgia and Ukraine on a path to NATO membership emboldened the Kremlin to act. President Dimitry Medvedev's harsh attack on Ukraine's leader in an open letter last month fanned their fears of Russian bullying of its neighbours.

East European officials cite Moscow's playing with the gas taps and trade disputes, and its apparent determination to keep its Black Sea fleet in the Crimean port of Odessa Sevastopol beyond a 2017 deadline agreed with Ukraine as part of a strategy of tension intended to reverse the "colour revolutions" in Kiev and Tbilisi, and bring other former Soviet republics to heel.

All that makes it a particularly awkward moment for Rasmussen to deliver his inaugural keynote speech on NATO-Russia relations on Friday in Brussels. The former Danish prime minister has put a few noses out of joint in his first weeks by making clear he intends to run NATO in a more results-oriented way, leaving less room and time for ambassadors in the North Atlantic Council to debate any idea to a standstill. He has set strict time-limits on council meetings, streamlined flabby agendas and outsourced the drafting of a new Strategic Concept to a group of 12 experts led by former U.S. Secretary of State Madeleine Albright, on which not all allies are represented.

His personal management style and high media profile (monthly news conferences, a blog and Twitter chatter) has sharpened the traditional Kabuki dance in which a new boss and the old board flex their muscles at each other in mutual suspicion, insiders say. It is the first time a former prime minister, used to running a government and to talking to fellow national leaders, has been picked for the job. Previous secretaries-general were former defence or foreign ministers, more accustomed to being servants of the member nations.

Both camps within NATO (which privately brand each other the "Friends of Russia", and the "Cold Warriors") will be watching every word of Rasmussen's Russia speech to ensure he does not depart from alliance policy. The fact is that NATO has been unable to agree on an overall policy towards Russia since the 1990s, when it declared that Moscow was no longer an adversary.

Rasmussen hopes to launch NATO's own modest "reset" of ties with Russia, offering closer cooperation on Afghanistan, a joint threat assessment and work on non-proliferation of nuclear weapons. NATO officials have received assurances that Moscow will respond positively and breathe new life into the NATO-Russia Council.

None of that will assuage NATO's east European members, who are likely to press harder now for practical steps to give credibility to the alliance's Article V mutual defence commitment. That could involve drafting military plans to reinforce the Baltic republics and Poland, and holding joint military exercises on those countries' territory. The French and Germans have resisted such ideas in the past as unnecessarily provocative to Moscow. If NATO cannot agree to such moves, the United States may have to do more on its own to compensate its jilted friends.

(note: corrects Odessa to Sevastopol in 6th paragraph)

Jose 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?

Is France trying to stymie Jose Manuel Barroso's re-election for a second term as European Commission president?

An intriguing story in Le Monde reports that French Prime Minister Francois Fillon (pictured left with Barroso and President Nicolas Sarkozy) is considering offering his services as head of the European Union executive if Barroso fails to win majority support from the European Parliament this month. Le Monde quotes an unidentified French minister and an anonymous senior diplomat, with a comment from Fillon's office declining to speculate on a Barroso failure and saying that of course, the prime minister is interested in Europe but he hasn't put himself forward as a candidate.

What are we to make of this murky tale, published on the very day when Barroso, a conservative former Portuguese prime minister officially backed by France, began wooing EU lawmakers to give him a confirmation vote next week?

Well, Sarkozy has tried to keep Barroso off balance ever since France's hyperactive EU presidency last year. His aides have whispered poison against the Commission president, suggesting he was slow to react to the financial crisis and had to be constantly prodded into action by Paris. The French leader suggested in March there was no hurry to reappoint Barroso and it could wait until after next month's Irish referendum on the EU's reform treaty. He backed down in June and went along with the unanimous decision of EU leaders to nominate the incumbent for a second term.

There are at least three possible explanations for the latest twist:

 - it may just be another attempt to distance the French from Barroso, who has been widely cast by the French media, centrists, greens and the left as an "ultraliberal" bogeyman, whose support for light-touch regulation contributed to the crisis;

 - it could be a another warning shot from the Elysee Palace designed to keep Barroso on the defensive and pliant, ensuring that France gets a top job (the internal market or perhaps foreign policy chief)for its candidate for EU commissioner in the post-referendum horse-trading;

 - or, less likely, it could be a serious attempt to reopen the Commission presidency after the Irish referendum, giving waverers in the European Parliament a reason to postpone a vote on Barroso this month.

In any case, it is hard to imagine Fillon winning broad support for the top Brussels job. For one thing, he campaigned and voted against the Maastricht Treaty on European Union in 1992, which established the euro single currency and a common foreign policy. That would alienate European federalists, who are among Barroso's strongest critics. Many of the new member states in central and eastern Europe regard France as statist, protectionist and still hostile to EU enlargement. They would be unlikely to back a French candidate. A fluent English-speaker, Fillon has a British wife and is fiscally orthodox enough to pass muster with Germans obsessed with budget discipline.  I suspect Sarkozy would rather have a weak Barroso at the Commission, despite his avowed wish for strong European leadership in the crisis.

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.

In his cautious Franglais central-bank speak, Jean-Claude Trichet has pointed to the strong possibility that the euro zone may face a double-dip or W-shaped recession.

Of course, that's not exactly what the European Central Bank president said. But how else are we to interpret his repeated references to a "bumpy road" ahead, and his comment that we are likely to see quarters with positive growth and other quarters with "less flattering" figures? All this was illustrated with a hand gesture that drew a W (or a corrugated iron washboard) rather than a V or a U.

True, he also said a significant contraction in economic activity has come to an end, and may be followed by a very gradual recovery. The ECB staff have lifted their economic forecasts for the 16-nation euro area after Germany and France surprised markets by exiting recession in Q2. The bank is now forecasting 2010 growth in a range from -0.5 to +0.9 percent, compared to its June prediction of -1.0 to +0.4 percent. But Trichet made clear there remains a high degree of uncertainty.

Furthermore, the ECB's only significant policy announcement -- that it will offer banks yet more 12-month liquidity at its basement 1.0 percent refi rate later this month -- was a strong indication that rates are on hold for the next year, coupled with another clear signal that ultra-loose monetary policy would not be withdrawn any time soon. "Today is no time to exit."

Even the ECB's most outspoken inflation hawk, Juergen Stark, is cautioning against any early withdrawal of the monetary stimulus.

The latest growth figures may indeed flatter to deceive. Germany probably only grew in Q2 because the government's cash-for-clunkers handout boosted the auto sector. That scheme ran out at the end of August.

Private consumption in France and Germany has been buoyant because of state-subsidised short-time work programmes that have kept people in jobs despite the collapse in orders. Those schemes expire late this year or early in 2010. In some cases, order books have filled and workers have gone back to full-time jobs. But unemployment is bound to rise over the next year to over 10 percent. That will likely depress consumer spending leaving the euro area's two biggest economies reliant on exports for growth.

Against this background, Trichet is right to keep monetary policy loose. With some voices in Germany's Sept 27 general election campaign calling for a premature return to fiscal orthodoxy, sage words from Frankfurt suggesting that recovery is not the bag, and that inflation is not currently the biggest worry, are welcome.