Troubles in Brussels EU Lacks Ideas and Direction in Economic Crisis

As the economy in the European Union sinks deeper into recession, Brussels has proven itself to be devoid of ideas and solutions. Member states are going it alone -- and often getting in each other's way.


At least the introductory remarks were friendly. The heads of Europe's largest telecommunications companies and their key suppliers recently convened for a morning meeting on the 14th floor of the bulky Berlaymont building in Brussels, which houses the offices of EU Commission President José Manuel Barroso.

Spain is one of a number of European countries currently in recession. Here, a man on the streets of Madrid offering to buy gold.

Spain is one of a number of European countries currently in recession. Here, a man on the streets of Madrid offering to buy gold.

Two women delivered the opening remarks, European Commissioner for Competition Neelie Kroes and Viviane Reding, Commissioner for Information Society and Media. Reding said that she wants to reduce mobile telephone fees by up to 70 percent. The guests were horrified, complaining that Reding's plans would cost them billions of euros.

"No one paid attention to our argument," said one of the attendees. "They don't even recognize the problems. The financial and economic crises are not truly acknowledged here."

Telecommunications is one of the few industries still turning a decent profit -- and still interested in making investments. In return, the companies want "planning certainty." This includes, for example, their being exempted from new regulations coming from Brussels for several years.

A Stand-In for Leadership

It wasn't until December that EU heads of state and government had promised the industry "regulatory incentives" for broadband expansion. The companies now accuse the European Commission of thwarting such efforts. René Obermann, CEO of Deutsche Telekom, said heatedly: "It cannot be that the German government is setting up a major program for telecommunications infrastructure while Brussels thwarts it at the same time."

Unfortunately, though, it can. In fact, much of what is currently coming from the EU leadership is contradictory. Some things make sense and some are counterproductive, but inconsistency is everywhere. Breathlessness has become a stand-in for leadership.

The EU heads of state and government are scheduled to meet three times in the coming weeks, once for an extraordinary "crisis summit" on March 1, then for their normal "spring summit" just three weeks later and, finally, for a "job summit" in May. But despite the many summits, vision is in short supply in Brussels.

It is a poor time for such a shortcoming. The EU at the moment badly needs a coordinated policy to confront the economic crisis. In such difficult times, heads of state are all too quick to reach for protectionist tools to protect their national economies.

But new customs walls or import barriers, though perhaps beneficial to an individual country in the short term, would weaken the EU family, which already faces the threat of protectionist policies from other parts of the world, such as the United States and Asia.

Neither the Money nor the Competency

At first, Barroso and his commission grossly underestimated the scope and velocity of the crisis. The use of the word "recession" in EU documents was even banned for a long time. Anyone who warned of tough times ahead, such as Industry Commissioner Günter Verheugen, was laughed at.

In late November, everything changed. The Commission president suddenly positioned himself on the front lines in combating the crisis, and developed a bold €200 billion ($260 billion) program to stimulate the economy. But now, as Europe expert Fabian Zuleeg of the Brussels-based European Policy Centre (EPC) soberly concluded, "the Commission has neither the money nor the competency to do so."

And even where the EU leadership plans to spend long-approved funds earlier than scheduled in the hope that this will stimulate the economy, a lack of suitable projects has translated into few opportunities to spend the money. A list of concrete targets submitted at the end of January comes to a total of €76 million ($99 million) -- for the entire year and the entire EU. "What does this have to do with stimulating the economy?" German Finance Minister Peer Steinbrück asks.

Europe in crisis.

Europe in crisis.

Aside from spending money, though, there is plenty to do. But, as Daniel Gros of the Centre for European Policy Studies (CEPS) points out, most of the Commission's proposals -- from guidelines for bank bailout packages to new rules for rating agencies; from clear regulations for government assistance for industry to guidelines for spinning off worthless toxic securities into so-called "bad banks" -- are "sensible, but of little importance."

There is, in short, little good that Brussels can do. But it can do plenty of harm. Last week, for example, the Commission discussed guidelines for new CO2 emissions rules for commercial vehicles. Experts believe that merely the announcement of new standards would destroy the already ailing truck market.

This, experts say, is because potential buyers will hold off on their purchases to see which regulations will in fact become law after a lengthy legislative procedure. But because a new European Parliament won't be elected until this summer, and a new Commission in the fall, nothing would happen before the end of the year. Germany would be the hardest-hit.

European Recession

"We should do everything possible now to stimulate the economy," Commissioner Verheugen told his colleagues last Wednesday. "Anything else has to wait." Most importantly, said Verheugen, it is imperative that nothing be done "to exacerbate the crisis." But whether he will manage to hold his ground against Environment Commissioner Stavros Dimas is questionable.

Verheugen already failed to assert himself when it came to environmental standards for automobiles. Looking back, he recently summarized the situation in a speech to members of the European Parliament: "With our legislation, we have made the European car much more expensive." And this at a time when the new US administration is constantly devising massive new bailout packages for its own auto industry.

Under these circumstances, the EU Commission's dismal appraisal last week of the condition of the European economy was not surprising. The financial crisis has reached the real economy, the Commission noted, and the dilemma in the automobile industry is bringing down other sectors along with it.

From the steel and chemical to the textile and electronics industries, sales are down across the board. On Friday, it was announced that the entire EU economy shrank by 1.5 percent in the fourth quarter of 2008.

The downward plunge is accelerating, and that includes Germany. A wave of bankruptcies is spreading throughout the European economy. In Italy, bankruptcies were up 30 percent last year, and they have almost doubled in Ireland and Spain. This year experts anticipate about 35,000 bankruptcy filings in Germany, where the most prominent victims to date include underwear producer Schiesser, model train maker Märklin and porcelain company Rosenthal.

The economic climate in the European common currency zone has reached "an historic low," reports the Munich-based Ifo economic research institute. The banks' lending business is still sluggish. Countries like Romania are on the brink of bankruptcy. The Greek health minister is not even able to pay suppliers to government-owned hospitals. Some Eurocrats are already worried that the euro could eventually crumble under the pressure.


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