Thursday, 14 May 2009

It is good to see this dawning realisation by a German columnist in  the FT!

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FINANCIAL TIMES                        11.5.09

Like a fish, Europe is rotting from the head

    By Wolfgang Münchau

Helmut Schmidt, the former German chancellor, last month made an 
astute observation: “The European Central Bank is the only 
institution in Europe that works well.”

It is a remarkable statement in several ways. It implies of course 
that the other European institutions are not working well. I am 
afraid this is true. I have on previous occasions criticised the unco-
ordinated policy response of Europe’s political leaders. Their anti-
crisis strategy is to hope the US and China deliver sufficient growth 
to pull Europe out of recession. That will probably not happen this 
time.

But there is another, less frequently discussed dimension to Europe’s 
mistaken policy response. The European Commission, the executive arm 
of the European Union whose job is to implement the region’s law and 
to drive its policy agenda, has failed abysmally in this crisis. The 
Commission was largely absent during the worst months of last year, 
and its subsequent responses fell consistently below what one would 
expect.

Of course, the Commission is not a government. It has only a small 
budget, no powers to raise taxes or issue bonds, and it operates 
under strict guidelines. But as various dimensions of economic policy 
are now integrated across Europe, one would expect the Commission to 
play a leading role as a co-ordinator and as a source of new ideas to 
fight the crisis.

The problem with the Commission is not its civil servants. In the 
absence of political leadership, they apply the rules as they are, 
for example when they recommend brutal and politically suicidal wage 
cuts in Latvia, when they apply accession criteria to the eurozone 
with no flexibility, or when they produce ineffective financial 
regulation. These are not causes of the problem but mere symptoms of 
a lack of political direction.

There is a saying that the fish rots from the head, and this is 
exactly what has been happening here. There is nothing in European 
politics that stinks more than the apparent inevitability of another 
five-year term for José Manuel Barroso, the Portuguese president of 
the Commission. He spent most of the last few years on his bid for re-
election rather than doing his job. If the centre-right wins the 
elections to the European parliament, as everybody seems to expect, 
nothing can stop Mr Barroso’s bandwagon.

This state of affairs sends out a disastrous message – that job 
performance is irrelevant and that Europe has already reverted to 
business as usual. Mr Barroso is a conservative from a small country, 
who followed a socialist from a large country. Europe’s top jobs are 
not awarded on the basis of electoral success, but on whether you fit 
into an opaque political matrix.

In the case of a Commission president who has already served for five 
years, one would expect that he should at the very least be able to 
answer the questions: What exactly did you achieve during your first 
term? And what is your big idea for the second?

In my view, Mr Barroso is among the weakest Commission presidents 
ever, a vain man who lacks political courage. He and his supporters 
will tell us that his big achievement is his dogged pursuit of the 
Lisbon agenda, a programme to boost Europe’s international 
competitiveness. Another supporter of Mr Barroso told me that his 
biggest legacy was the decision to set up the De Larosière committee, 
named after a former central banker whose group produced a moderately 
ambitious report to reform Europe’s system of banking supervision. 
Okay, let us give him some credit for that.
I suspect his big idea for the next five years is to relaunch the 
Lisbon agenda, and waste another five or 10 years on voodoo 
economics, and diverting attention from real and urgent policy 
issues, such as a more coherent system of economic crisis management.

Everybody in Brussels is saying that Mr Barroso’s reappointment is 
almost a done deal. I suspect they are right. Ms Merkel apparently 
finds him a congenial and pliable Commission president, and the 
Socialists are too incompetent to field their own candidate. Gordon 
Brown, the British prime minister, is also supportive. Nicolas 
Sarkozy is not a fan but then the French president is not a supporter 
of a strong and self-confident European Commission either, so Mr 
Barroso might suit him well for that reason. Silvio Berlusconi, the 
Italian prime minister, has other problems at the moment.

There are still a few potential obstacles to Mr Barroso’s re-
election. The European elections might not go as well for the 
Christian Democrats as they hoped, and the centre-right might end up 
too fragmented. It is possible that the outcome of the second Irish 
referendum on the Lisbon treaty will have a bearing on the decision, 
which is why Mr Barroso wants EU heads of government to decide on his 
reappointment at their meeting next month, rather than in October, as 
Mr Sarkozy recently proposed.

So it is not quite game, set and match yet but it is as close as it 
could get at this stage. This is all very depressing. Mr Schmidt is 
right about the ECB. Indeed the central bank made a number of good 
decisions last week, when it delivered a robust policy response to 
the crisis.

But I never thought that we would ever celebrate a central bank as 
the only political institution that really works in Europe. How did 
we get there?