Who’s in charge in Europe?

The question has puzzled leaders ranging from Henry Kissinger, said to have once asked who he should call to reach Europe, to Barack Obama. It has become all the more pertinent as the European Union tries to fill what is widely viewed as a leadership vacuum during the euro zone's sovereign crisis.

 Two leaders are formally representing the EU at the G20 summit this weekend, EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso.

 But the U.S. president called neither of them when he wanted to get his message across to the EU at the height of the crisis in May. Instead, he called German Chancellor Angela Merkel and French President Nicolas Sarkozy.

 That underlined how the balance of power is shaping up since the start of the crisis and following an institutional shake-up under the Lisbon treaty that went into force in December.

 In the reshaped political landscape, power is divided between the executive European Commission and the European Council — as well as the European Parliament — but they are heavily dependent on France and Germany shaping decisions.

 “If you look at the performance of the European leadership and system since the start of the euro zone crisis, there's no way you can give them full marks,” said Thomas Klau, an analyst at the European Council on Foreign Relations think tank.

 “But the crisis has showcased the importance of the Franco-German couple. In most cases a Franco-German agreement is what becomes the template for a European agreement.”

Setting the agenda

 Time and again in the crisis, Merkel and Sarkozy have held bilateral talks during EU summits or just before them that shaped the agreements reached by the entire 27-country bloc.

 In the most recent example, decisions they took at talks in Berlin on June 14 paved the way to agreement at a Brussels summit three days later on the broad outlines of plans to tighten rules and reinforce economic policy coordination.

 Sarkozy accepted that moves to closer policy coordination should involve all 27 EU member states and not just the 16 that use the euro, and dropped demands for a dedicated euro zone secretariat which Berlin opposed.

 This highlighted how Germany now dominates the relationship and the EU as a whole.

 “It's clear that when it comes to a response to the euro zone crisis, Germany is managing to stamp its view on the others,” said Simon Tilford, chief economist at the Centre for European Reform think tank in London.

 This leadership role comes with responsibilities. As Europe's largest economy, Berlin is the biggest contributor to the euro zone's 750 billion euro ($920 billion) financial safety net for countries struggling in the debt crisis.

 It is not a role Germany is entirely comfortable with, especially as many Germans oppose bailing out more profligate member states and Merkel, whose popularity has sunk, is widely seen as more focused on internal matters than before.

 The French are also uneasy about the relationship and what they regard as a “creeping unilateralism” on the Germans' part, but they have little choice but to cooperate, diplomats say.

 “The German-French tandem is not working properly but there is just no other option,” said Janis Emmanouilidis of the European Policy Centre think tank.

Speaking with one voice

 The European Commission and the European Council, the institution which represents all the member states and is headed by Van Rompuy, are also doing their best to show solidarity.

 The Commission is working closely with the French and the Germans, as well as with the Council, to come up with proposals for containing the crisis which began in Greece and has threatened to spread to other euro zone countries.

 Commission officials say many of their proposals have been adopted by the member states and that cooperation is good. But relations with France and especially Germany have been strained at times, with Berlin and Brussels trading open jibes.

 Van Rompuy has found his own niche, taking charge of a task force overseeing moves to tighten budget discipline and economic policy cooperation to prevent further crises.

 He has helped smooth relations between Sarkozy and Merkel, diplomats say, and fills a gap left by a decline in the influence of Luxembourg Prime Minister Jean-Claude Juncker, who chairs meeting of euro zone finance ministers.

 He has a further chance to strengthen his position when Belgium takes over the EU presidency on July 1. Belgium is expected to run a smooth presidency, but it may not have a coalition government for weeks following an election on June 13.

 The EU leaders appear to have learnt lessons from the errors they made at the start of the crisis when their action — or lack of it — was widely seen as a sign of weakness and some of their comments heightened alarm on financial markets.

 “The good news is that even this confused and ill-advised bunch was eventually forced to come together and approve unprecedented measures to rescue the euro from disaster,” the Brussels Centre for European Policy Studies think tank said.

 Agreement on the safety net, and a 110 billion euro support package for Greece, has helped ease markets' concerns but traders still have long-term worries that the austerity moves being announced across Europe will stymie growth.

 Obama has expressed such concerns — and been rebuffed by EU European leaders. But analysts see a danger of a new recession in Europe if it fails to tackle imbalances between stronger performing countries such as Germany and weaker states.

 “Unless they address the underlying issues, there could be defaults and recession,” Tilford said.

  For more on the EU, double-click on [EU/LOOK]
 (Editing by Andrew Roche)

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