An unlikely European power center rises

Of all the elements characterizing the European Union, with its unruly classroom of 25 and counting, perhaps the most striking is the lack of direction and cumulative absence of both individual and collective leadership in the bloc. Many items on the broader agenda are on hold, while the bigger governments are either in the throes of protracted weakness (France, Italy, now Britain) or in transition (Germany). The addition of 10 new states has added regulatory and other burdens, while an overstretched Brussels has had to fight fires – rejections of the European Constitution, budgetary and world trade impasses – rather than light them. The EU itself seems, at any rate to its increasingly vocal army of detractors, like a bloated body with a shrunken head. Many accusatory fingers, naturally, point to the European Commission under Jose Manuel Barroso – now very tentatively celebrating its first anniversary in office – for failing to give forceful direction during a dismal year for European enthusiasts and amid growing social and populist discontent in many parts. Out of the political muck has emerged an unlikely source of continuity and authority: the European Central Bank, the newest of key European bodies, which plies its trade in Frankfurt rather than Brussels. As Europe’s inflationary watchdog and guardian of the euro but little else, the ECB in under a decade has clawed its way to respectability and even strength as the EU has had to jettison its high-blown political agenda and get back to plain-vanilla economic concerns like growth, trade, inflation and budgets. Hybrid leader This refocusing of priorities can be seen, for example, in Greece’s relations with the Union, which this year have revolved around its deficit and excess aid to ailing Olympic Airlines. It is all quite a change from 10 or 15 years ago, a putative golden age when the EU was bursting at the seams with ideas, strong leaders and a sense of renewed, post-Cold War purpose. This fall, in fact, marks 20 years since the finalization of the landmark Single European Act, negotiated in late 1985 and signed in February 1986. The SEA marked the first real reform of the original treaties, boosted political cooperation, and aimed to complete the internal market in goods, services, labor and capital – a process well advanced but still unfulfilled. The stage was set for a new thrust that resulted in monetary union, for some if not all EU members. One body that grew out of that process, the ECB, has solidified its position as a key guiding hand for Europe in these troubled days. The stewardship of Jean-Claude Trichet has maintained the (otherwise fading) Gallic presence at the European apex, while his unsentimental approach to European monetary policy has contrasted with the public style of his loquacious predecessor and first ECB head, the late Wim Duisenberg. Under Duisenberg the ECB frequently made the news for verbal gaffes, a slumping euro currency and a perceived indifference to both. All this undermined its authority more than was warranted, for in his folksy, unorthodox way Duisenberg was also establishing a solid basis for the Bank’s future. Under Trichet, the ECB is more outwardly disciplined and focused – hence potentially more worrying for national governments struggling to boost growth and employment at a time of social unrest and rising levels of consumer debt. Eschewing possible temptation and certain political pressure, the ECB has left European interest rates unchanged for the past three years. Lately, however, it has been making noises about inflationary pressures with headline (not «core») inflation now well above the bank’s 2 percent target and growth levels actually perking up. Hints of a rate hike have had EU finance ministers on tenterhooks, which indicates the combustible nature of interest rate policy in such an environment. You know you are a force to be reckoned with when you keep ministers and markets biting their nails even when you’re doing nothing. The ECB nonetheless remains an unlikely source of strength. For one thing, its remit is narrow, even for a central bank; its primary role is to safeguard price stability, but it does not set explicit growth or unemployment targets. Second, it governs interest rate policy not for Europe but only for the eurozone; just 12 of the 25 EU members. Even after 2007, when Estonia, Slovenia and Lithuania are slated to join, only 15 will be using the common currency. Third, it has no «political» responsibilities, and its institutional structure is weak. Yet for all its new and experimental nature, the ECB has kept a steady and independent hand on the European tiller (and till). And with the US Federal Reserve – the ECB’s American equivalent – now undergoing a rare change of guard, with longtime chief Alan Greenspan set to be replaced by Ben Bernanke in the new year, Trichet’s role seems temporarily enhanced. The ECB would surely swear off any claims of being a beacon of economic calm, much less a source of political stability, but its plodding presence in a pitching sea of uncertainty is evident. The mess lower down Compare this careful stewardship with the tottering governments in leading EU states. Germany has only just forged a grand coalition two months after its elections, with Angela Merkel taking over the Chancellery after the Schroeder era. The process has left casualties even within the two governing parties, the SPD and the CDU/CSU. The Socialists saw their party head, Franz Muentefering, ditched after a left-wing revolt in the ranks, while Merkel’s designated economy minister, Bavarian conservative Edmund Stoiber, walked out before taking office. Riots in France, with thousands of burned cars littering streets in Paris and elsewhere, have been reminiscent of May 1968 as disaffected youths have been riding a potent cocktail of anger, unemployment, discrimination, and hopelessness. The response has struck many as unequal to the task, particularly the near-absence of a politically weakened President Jacques Chirac. In Britain, Prime Minister Tony Blair suffered two recent hits, with his first ever defeat in Parliament (over anti-terrorism legislation) and the loss of old Cabinet ally David Blunkett. Blair, a self-imposed lame duck, has mounted political comebacks before, although his authority is likely to ebb as the parliamentary timetable advances. And in Italy, PM Silvio Berlusconi’s popularity has plummeted as his government faces elections next spring. In Brussels, a weakened Commission may be a consequence of the times rather than a reflection of personalities. The activist Delors Commission that ended in 1994 was more the exception than the norm, while Barroso is following two predecessors, Jacques Santer and Romano Prodi, whose terms were unexceptional at best. The European Parliament is many years away from asserting genuine authority. Clearly, the absence of strong leadership elsewhere and a floundering broader agenda has thrust the ECB center stage; it is stronger in a relative as well as absolute sense. Even if Europe’s erstwhile leaders can’t put a right step forward these days, something they created in headier times is busily taking up the slack.

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