Rift Over Crisis Response Barroso's Struggle to Escape Merkel's Shadow

German Chancellor Angela Merkel is angry at European Commission President Jose Manuel Barroso for trying to take over the management of the euro crisis by proposing an increase in the EU's rescue fund. The proposal by Barroso, who owes his job to Merkel's backing, reflects his desire to break free from her.

He's finally done it. Right now, he's "one of the world's most powerful politicians." And, here, he's treated accordingly. The country's most prestigious university has bestowed an honorary doctorate on him. The country's president takes the wheel of his Mercedes S 600 and chauffeurs him in person to a restaurant, cruising at 140 kilometers per hour (87 mph) and calling his passenger simply "Mr. President." José Manuel Barroso, the president of the European Commission, commands the respect one would accord Europe's premier politician.

Still, to get that respect, he has to take a long flight to a small country in the Caucasus. The man calling him one of the world's most powerful politicians is the rector of Baku State University, and the president driving him around is Ilham Aliyev. In Azerbaijan, Barroso is a great man.

' Brussels Is in Charge'

That's how things were for Barroso last Thursday and Friday. But last Wednesday was a different story. On that day, after giving a press conference at home in Brussels, Barroso was rebuked like a naughty schoolboy. Barroso had suggested expanding the euro rescue fund. German Chancellor Angela Merkel snarled back that, for the time being, that wasn't even up for debate.

Merkel wants things to calm down. She doesn't want financial markets to be constantly confronted with the euro crisis. And that's why she's downright angry with Barroso. He doesn't plan on giving in, however. He has tasked his Commission with devising a comprehensive plan for optimizing the rescue fund.

In what amounts to a swipe at Merkel and the other government leaders who have been dominating crisis-related policies, German EU Energy Commissioner Günther Oettinger also supports his Brussels-based boss. "Reactions during the euro crisis have been too slow in coming," he told SPIEGEL. "For that reason, I favor a policy that is forward-looking and perhaps even a bit provocative. Brussels is in charge, and it's Barroso's job to push things through." Such comments have to be particularly annoying for Merkel, especially since it was she who sent Oettinger, a fellow member of her conservative Christian Democratic Union (CDU), to Brussels.

This has triggered the latest power struggle in the fight to save the euro. Until now, it was the individual euro-zone countries wrangling amongst themselves. But now Barroso has seized the reins. The man with a reputation for being more of a pussycat than a lion suddenly wants to be the savior of the euro.

Barroso has now pitted himself against Merkel, and the fight is being watched by an anxious and critical audience that is made up on the one hand of the EU citizens, who especially in Greece are worried about their living standards and are constantly taking to the streets in fresh protests. The audience also includes the financial markets. If they start feeling like the Europeans can't get a grip on their problems, they can cause entire countries to teeter and the euro to crash. Under these circumstances, the issue is whether European democracy can function under the gaze of such executioners.

The Berlaymont Coup

The power struggle between Brussels and Berlin started last Wednesday. Barroso was in high spirits when he faced reporters in the"Berlaymont," the European Commission headquarters, he was in high spirits. Together with European Currency Commissioner Olli Rehn, Barroso presented the EU's first Annual Growth Survey meant to mark "a new phase in European integration."

The report serves as the foundation for the budget planning of several EU member states. From now on, governments will have to submit their draft budget proposals to Brussels for evaluation before they are even discussed by national parliaments. This follows a decision taken by the member states themselves. It means more power for the Commission, more power for Europe and a small step in the direction of a common fiscal policy.

"Read the document," Barroso proudly told reporters. "It's not the usual exercise in diplomacy; it is clear and crisp." He did not promise too much. But one sentence in particular really got Berlin's blood boiling: "We consider that its effective financing capacity must be reinforced and the scope of its activities widened," Barroso said, referring to the European Financial Stability Facility (EFSF), which makes up a large part of the euro rescue fund.

When Merkel heard what Barroso had said, she became angry. She has nothing against an expanded rescue fund in principle -- as long as it is necessary. To date, not even 10 percent of its capacity has been pledged. Still, Merkel thought the announcement was badly timed. On Wednesday, Portugal had successfully issued new 10-year bonds and Merkel was hopeful that the measures being taken to contain the crisis were working. She also feared that Barroso's plans could re-inject fear into the markets.

She didn't telephone Barroso to share her rage in person. But, according to sources close to her, "he was informed."

What Would Merkel Do?

The next day, on Thursday, Barroso took a small jet from Brussels to Azerbaijan. In Baku, with Energy Commissioner Oettinger at his side, he signed a memorandum of understanding aimed at guaranteeing access for Europe to the natural gas supplies of the Caspian region. 

After having dinner with President Aliyev, Barroso retired for the night. Although he preferred to not to comment on Merkel's criticism at all, he agreed to meet with SPIEGEL at 10:30 p.m. in his suite in the Azerbaijani guesthouse. Barroso sat on a couch. He had replaced his suit jacket with a dark-blue sweater.

Asked whether he could understand Merkel's criticisms, Barroso thought for a while and then smiled. "Germany is the largest economy of the euro zone, in fact, of the European Union," he says. "I understand the specifics of the Germany debate in the euro crisis very well."

That was a diplomatic start. But over the course of the conversation he also revealed his disappointment. He said he had done a lot of things that Merkel should have approved of. As he saw it, the Annual Growth Survey he presented Wednesday largely embraced German views on fiscal policy. He pointed out, for example, that the document stressed the need for "rigorous budget consolidation" by member states.

Barroso had pushed this line through at a late-night meeting against the resistance of several EU commissioners. Michel Barnier, the French European Union commissioner for internal market and services, warned that it might be asking too much from heavily indebted countries, such as Greece, Portugal and Spain. But Barroso refused to budge -- just the way Merkel would want him to.

Consequently, Barroso found Merkel's criticism unjustified. He said this wasn't about Germany transferring money. Instead, the real issue was to have member states make guarantees high enough to allow the rescue fund to gain the maximum amount of credibility on the financial markets.

Barroso was particularly upset about the fact that members of Merkel's conservative Christian Democratic Union (CDU) in the European Parliament had accused him of unsettling financial markets. He sat forward on the edge of the couch and was gesturing wildly. For starters, he asked, didn't the markets respond positively to his statements? And then he pointed out that Spain and Italy also followed Portugal's lead last week by auctioning off fresh state bonds without a hitch.

He had done so much for Merkel. For example, last year, when she was dragging her feet about offering financial support to Greece, he asked the other member states to show understanding for Germany's position. He explained to them that Germany's Federal Constitutional Court  was strict about making sure that the European treaties weren't breached. Likewise, in keeping with Merkel's wishes, he campaigned to extend EU subsidies for German coal  until 2018. In doing so, he even thwarted his own Commission who wanted to phase out the subsidies even earlier.

In fact, Barroso can't really explain why Merkel responded so harshly to what he said at the press conference. When it comes to the issues themselves, Barroso believes that Merkel is on his side. As proof, he cites an article from that day's Financial Times claiming that Berlin actually does support Barroso's initiative. Indeed, he says he has "absolutely no doubt that Germany and its chancellor are determined to defend the stability of the euro zone."

Still, Barroso is not prepared to cede the discussion to the member states. In a speech before the European Parliament in Strasbourg on the state of the European Union, he had already criticized its increasing "intergovernmentalism." During the conversation with SPIEGEL in Baku, he said: "I expect the leading German politicians to accept the Commission's role." He added: "We in the Commission have not only the right but also the duty to tell Europe's citizens what we consider to be right."

Merkel's Man in Brussels

When he talks like this, Barroso sounds fairly confident, and his staff are quite proud that they didn't get prior blessing from Merkel or French President Nicolas Sarkozy for Barroso's initiative. This was Barroso bid for public recognition after he had played only a minor role in the financial crisis. In fact, he is largely regarded as the man responsible for all the regulations being churned out of Brussels, such as the allowable salt content in bread.

Barroso has also been regarded as Merkel's creation. In 2004, Europe's conservatives had a majority in the European Parliament and were able to choose the new president of the European Commission. One of the names under consideration was that of Guy Verhofstadt, then Belgium's liberal prime minister, but Merkel had someone else in mind.

At the time, Germany was still led by Social Democratic Chancellor Gerhard Schröder, while Merkel was the leader of the opposition. Recognizing this as an opportunity to increase her standing on the international stage, she succeeded in pushing through a conservative candidate, then-Portuguese Prime Minister Jose Manuel Barroso. In party terms, at least, it was a triumph.

As president of the European Commission, Barroso initially didn't attract much attention. Whenever he made public appearances, he seemed rather pale and stiff, and he avoided locking horns with Merkel on any issues. Then, after Merkel became Germany's chancellor in the fall of 2005, the two teamed up to enact ambitious goals for the reduction of carbon dioxide emissions and the share of energy coming from renewable resources.

Barroso's Emancipation

But Barroso eventually liberated himself from Merkel, and he soon began to see himself as the man to define and implement Europe's interests.

In late 2007, the two had their first public spat. Barroso wanted to put strict limits on the amount of greenhouse gas emissions from passenger vehicles and enact stiff penalties for those exceeding the limit. But Merkel feared that the limit would hurt the competitiveness of Germany's auto industry, which manufactures considerably more large sedans with powerful engines than Italian and French competitors. No longer was she the "climate chancellor"; now she was thinking purely in terms of the German national interest. Barroso, on the other hand, remained true to the European approach that he had once jointly defined with Merkel.

Thereafter, relations between Merkel and Barroso remained tense. When Barroso stood for re-election in 2009, Merkel only supported him because she didn't find any of the alternatives appealing. The result was that Barroso was elected for the second time despite the strong doubts about him in the European Parliament.  But as far as those competing with him for influence in the European Union are concerned, having a weak president also has its advantages.

However, Barroso didn't stop irritating Merkel. In September 2010, when the Commission called for its own special EU tax,  Merkel shot back a clear "Nein!" to Brussels. Behind closed doors, she made very angry comments about Barroso at the time.

What happened last week was similar. Sources within the Chancellery say relations between the two are "strained" but not poisoned. Merkel comforts herself with the thought that the other candidates in 2009 would have been much worse.

Crowded at the Top

Thus, as Barroso puzzles over what could have prompted Merkel to speak out against his plan, people in the Chancellery are wondering how Barroso could have made such a proposal. Of course, the natural conclusion is that it has something to do with power politics.

Since December 2009, the EU has had a permanent president of the EU Council who is elected for a 30-month term from among the heads of state and government. At the moment, this office is held by Belgium's Herman Van Rompuy, a virtual unknown in international politics.  People within Merkel's inner circle speculate that Barroso might be trying to outshine Van Rompuy, his would-be rival in the competition for the "Mr. Europe" title.

Both of them are supposed to serve as the figurehead of the European Union. But, at the moment, the role is a very minor one. Indeed, when the crisis broke out, Europe became fragmented.

With each of them feeling threatened, everyone initially just thought of themselves. There are the national interests of the European Union's 27 member states, which also include various opposing alliances. Seventeen of them belong to the euro zone, and 10 of them don't. Among the euro-zone countries, there is a northern group and a southern group. There is the fragile Germany-France axis. There is the Napoleonic special case of Sarkozy. There are the big states and the small ones. There is the European Commission with its 26 commissioners. There is Barroso. There is Rompuy. There is the European Parliament with its 736 representatives. And there is the European Central Bank (ECB), where the candidates for the next ECB president are already jockeying for the job. It amounts to a cacophony of opposing views in which Europe sounds like a symphony orchestra tuning up before the start of the concert.

Showtime

The lack of harmony between Merkel and Barroso is merely a symptom of this larger problem. The markets react very sensitively to what is said. They weigh everything very carefully, and whenever something makes them nervous, they calm their nerves by raising interest rates. Doing so threatens entire state budgets and, consequently, the euro as well.

This is exactly what Merkel is afraid of, and it is this fear that lies behind her scolding of Barroso. Merkel is also yielding to the dictates of the markets. Democracy is based on public discussion aimed at finding the right policies. If politicians no longer feel at liberty to openly discuss their views with each other, democracy can no longer properly function. At the moment, Europe is a democracy steered by the markets. Its politicians will only be able to liberate Europe from the markets' grip if its individual countries can balance their budgets.

Barroso now has to show whether he has what it takes to commit the EU's member states to cutting their budget deficits. Ideally, he would do so together with Merkel.

During the interview in Baku, Barroso presented himself as the strong European. Although he didn't take her comments personally, he also didn't feel like he had to explain any of his actions to her, adding: "My job is to defend the welfare of Europe."

Translated from the German by Josh Ward
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