Their anti-crisis strategy is to hope the US and China deliver sufficient growth to pull Europe out of recession

TO BE NOTED: From the FT:

"Like a fish, Europe is rotting from the head

By Wolfgang Münchau

Published: May 10 2009 18:58 | Last updated: May 10 2009 18:58

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?

munchau@eurointelligence.com"