"Several factors [other than the ideological views of the personalities that form the new college] will be important in shaping the economic stance of the new Commission. The first is that EU commissioners act within a well-defined legal and institutional framework. Irrespective of what commissioners may think, treaty obligations require the Commission to press for open markets and enforce competition policy.
The second factor is that the Commission is not the only actor in EU economic policy-making. The national governments have a big influence over the rules and policies that the EU adopts. In most areas of policy the Commission can only propose, co-ordinate and persuade. It cannot make rules. Another important actor in the EU’s system of economic policy-making is the European Parliament. MEPs will want to make their influence felt. The fact that more than half of the 736 MEPs hail from centre-right or liberal parties does not necessarily mean that the Parliament will be pushing for more open markets. Some MEPs may want to prove their relevance to an often disinterested European public by taking up calls for more ‘social Europe’.
A third factor that will influence the Commission is the prevailing economic philosophy. Over the past 18 months, since the financial crisis struck, free markets and the ‘Anglo- Saxon’ model of capitalism have been on the defensive. The actions and policies of the Commission have inevitably reflected that shift.
In Barroso 2 the president is likely to be an even stronger figure. This is because he has learned to be a canny operator within the Commission and among the heads of government. Barroso is a pragmatic politician rather than an ideologue. He knows that he cannot achieve a great deal if he alienates many member-state governments,
Barroso now talks more about the need to balance liberalisation with more ‘social Europe’ (although the EU has very limited powers in the area of social policy). He also advocates a ‘new industrial policy’. This does not mean, he stresses, that public funds should support favoured companies. But Barroso supports state aid rules being interpreted with greater flexibility, so that, for example, governments and/or EU institutions can support ‘lead markets’ in new technologies.
The greatest threat to Europe’s open markets will come from the dire economic backdrop and the political pressures that low growth and rising unemployment will generate Although Europe emerged in late 2009 from its worst recession since the 1930s, hopes that the recovery will be strong and sustained are likely to be disappointed.
It is possible that this bleak economic context will galvanise some countries into embracing reforms that they have put off for too long. It is more likely, however, that Europe’s low-growth, high-unemployment environment will foster the emergence of fractious governments that are under pressure from labour unions and other organised interest groups.
The most immediate challenge facing the EU is the need to help prevent Greece or another eurozone country defaulting on its debt.The Commission should be ready to work with the IMF rather than exclude it from efforts to help Greece or any other eurozone member in difficulties. The fund is experienced at attaching tough conditionality to loans for struggling governments. It is professional, objective and not subject to political interference. There is a risk that conditionality applied and monitored by the Commission may not be rigorous enough to convince financial markets that an EU-led rescue package will succeed.
The major long-term challenge confronting the eurozone is the need for its weaker members to embrace structural reform. With investors now looking askance at the creditworthiness of several eurozone economies, the Commission’s routine calls for fiscal discipline and reforms that would boost productivity may be heeded.
Of all the appointments to Barroso 2, few have attracted more attention than that of Michel Barnier to the financial services portfolio. Barnier faces two main tasks on financial services. The first is to steer through a number of reforms to make the financial system safer. The second is to restore trust in the single market in banking, which has been badly shaken by Iceland’s inability to compensate foreign depositors following the collapse of Icelandic banks. Barnier is responsible not only for financial services, but also for all other aspects of the EU single market.
The financial crisis has had three adverse consequences for the single market. First, it exposed the fragility of member-states’ support for some of the key principles of the internal market. Second, it sapped public support for competition and open markets. And third, it revealed certain aspects of the single market – particularly the arrangements for cross-border banking – to be unworkable without major reform.
The challenge facing Michel Barnier will be to uphold existing rules and advance market integration (in areas such as services and e-commerce) at a time when anxious workers will see increased competition as a threat to their jobs. The Commission will have to explore ways of ‘selling’ the EU’s liberalising agenda to national governments
Barroso has tasked Mario Monti, with writing a report on the future of the single market. Monti has already called for a new ‘grand bargain’ between countries with ‘social market’ and ‘Anglo-Saxon’ outlooks. Monti believes that this bargain could take the form of countries with an Anglo-Saxon outlook agreeing to curb tax competition (by signing up for the harmonisation of tax bases and minimum rates of corporation tax), to make sure that governments have sufficient revenues to pay for social policies. In return, the social market countries would show greater enthusiasm for market liberalisation in areas such as services.
One of the new Commission’s first tasks will be to steer through an economic reform plan for the EU, to replace the Lisbon agenda – the programme of supply-side reforms that was launched in 2000 and ends this year.
Like the Lisbon agenda, EU 2020 will be a programme with many objectives but few instruments. The Commission will probably be given a handful of targets that fall within its area of responsibility, such as creating a single market in ecommerce.
"The Commission's main role in EU 2020 will probably be to manage what amounts to a peer group review process. It could play a more proactive role if it was prepared to 'name and shame' the governments that fail to fulfil their promises on economic reform.
The need to raise the innovative capacity of EU economies is more pressing than ever. The previous commissioner for innovation, Janez Potocnik, presided over much excellent work in this area. For example, the EU set up the European Research Council in 2007 to allocate funds to universities and research institutes on the basis of peer review. The ERC has been a great success and now distributes 15% of the EU's R&D budget (which totals around 7.5 billion euros a year).
Potocnik's successor, Maire Geoghegan-Quinn, has already indicated that she will build on her predecessor's work. She should be able to count on Barroso's support in her inevitable battles with EU governments over some contentious issues. One of these is whether the Commission should publish comparisons between countries that do well in innovation and those that do not. Another is whether more of the EU's R&D funds should be allocated through the ERC. A third issue is whether the Commission should continue to place such an emphasis on lead markets. Some governments fear that this will benefit the Union's more technologically advanced member states to an unfair degree.
Ever since the financial and economic crisis began, the EU has just about managed to avoid a drift towards protectionism. We expect the new team of commissioners, like that which preceded it, to do its best to maintain the integrity of the single market, a strong competition policy and a focus on promoting innovation.
However, the new Commission takes office at a time when unemployment is rising and Europe's economy is likely to grow slowly for several years. That may push governments to try and skirt around EU rules, especially since many voters think that Anglo-Saxon forms of capitalism have been discredited.
To avert such potential threats, President Barroso will need to provide strong leadership and to remind the other 26 commissioners that the rationale of the Commission is to consider the wider European interest, rather than that of any individual member state."
