Crisis highlights Brussels is powerless

EU leaders are coming up with their own strategies to solve the economic turmoil. Brussels can only watch from the sidelines.

Neelie Kroes, European commissioner for competition, came into the Brussels press room yesterday carrying a basket full of candles and paper plates.

“We have dismantled a paraffin cartel,” she announced proudly. “Ten companies have been fixing prices of paraffin products like these for the past 13 years. But the European Commission has taken action. We have fined them 676 million euros in total.”

That same moment in Paris, French president Nicolas Sarkozy was showing another sort of toughness. As the global financial crisis threatened one European bank after another, Sarkozy, currently chairman of the European Union, called government leaders to a meeting.

He was testing opinion about plans to set up a European fund to protect bank account holders in all 27 member states. The French proposed other European measures to stop the financial wounds from bleeding.

Freeze on rules

A European watchdog for banks operating across borders? A temporary freeze on European rules governing state support for industry? No one has any idea what works and what does not. That is why Paris has so many ideas on the go.

The contrast between what Brussels and Paris are doing could not be greater. National politicians are making European policy on the financial crisis. And the European Union's day to day management – the European Commission – is dismantling paraffin cartels.

European officials in Brussels are painfully aware of this discrepancy.

Controversial plan

Twenty years ago, when the European Commission still had power, its chairman was Jacques Delors. Economic downturn? Delors would come up with a controversial plan, which he had already discussed with government leaders and was promptly accepted by all of them.

But now the European spirit is not a fraction of what it was then. After Delors, government leaders have come up with weaker brethren to chair the Commission. They wanted to take back the initiative.

And that is why the current chairman, Portugal's Jose Manuel Barroso did not appear in public yesterday to announce that he wanted to set up a pan-European fund to save the big banks.

Call Brussels

Instead Barroso appeared in public with the chairman of the African Union and spoke about European aid to Africa to counteract rising food and energy prices. Barroso did mention the panic on the financial markets. He called on member states to please contact Brussels if they wanted to rescue any faltering financial institutions.

He also praised several measures that the Commission is going to put to member states which will increase the supervision of multinational banks and insurers and increase controls on speculation with risky credit. But these measures have been the subject of discussion for years. And they are not an answer to the crisis.

European tax

“How many banks can a national government rescue? Germany itself could not prevent Deutsche Bank from collapsing,” said one European diplomat. Deutsche Bank is enormous and active in a lot of countries. In such a case, a European emergency fund, like the one America is trying to set up, would be the best answer.

But, as one European civil servant said: “Such a fund would get its money from tax receipts. And tax is levied at a national level, not at the European level.. why ? Because European countries don't want a European tax, let alone a European fiscal system.”

Far-reaching guarantees

And that is why individual countries can talk about a fund, but Brussels cannot. Brussels has no say over tax income. And if it does say anything, it is immediately seen by 27 members states as interference, or worse. Ireland did not even bother to tell Brussels first about its far-reaching guarantees for Irish bank account holders.

Neelie Kroes had reason to be furious with Ireland for totally bypassing her. But when she had finished her story about the spectacular paraffin cartel bust, she gently asked governments, without mentioning Ireland, “to continue their practice of consulting the commission when they are confronted with problems that may require state aid to the banking”.

In the meantime, Commission officials are trying to find what Sarkozy is up to in Paris with his fund. This is, said one of them, “how deep the European ideal has sunk”.