Commentary: Remake The Ec From The Top Down

It was a rare moment of decisiveness for the European Union. As Prime Ministers and Presidents of 15 EU countries gathered in Berlin for a crucial summit on Mar. 24, they wasted no time picking a new president of the European Commission. The selection came just days after the resignation of the entire 20-member commission under a cloud of corruption allegations. Within minutes, Europe's leaders voted unanimously to appoint former Italian Prime Minister Romano Prodi to head the troubled body--and clean up the EU bureaucracy. "He knows what reform is about," declared German Chancellor Gerhard Schroder.

Prodi should waste no time applying his expertise boldly to the sprawling, opaque European Commission. The recent tumult presents the best opportunity in decades for a complete overhaul. At issue is not merely stamping out fraud but changing the way the commission operates--from slashing the size of its budget to boosting its accountability. The key is transforming the EC from a funnel for subsidies to national governments to a tightly run market-regulating agency.

GOOD TRACK RECORD. The 59-year-old Prodi may be just the right choice to tackle such a difficult job. A consensus-building politician, he emerged from the corrupt world of Italian Christian Democratic politics with a reputation for honesty and austerity. The former economics professor managed to get Italy into the European Monetary Union on the first round. And businesspeople respect him for restructuring the Italian conglomerate IRI when he was its chief during the 1980s.

He's certainly making the right noises. "We have to build the structures to afford change," Prodi told an economic conference in Frankfurt as his appointment was announced.

The new president's first crucial move should be forcing through major cuts to the EC's $100 billion annual budget. Theoretically, most of these funds go to farmers and to poorer regions whose citizens earn less than 75% of the European Union's average. But a big chunk of the aid actually ends up in the pockets of the Continent's largest, richest, and most politically powerful farmers. Under prodding from Schroder, Europe's leaders have been groping toward a consensus on cutting the EU budget to end this mess. Prodi has to keep up the pressure. But he should also slash programs that fund job training to the tune of $165 million a year and tourism promotions totaling $8 million annually. Audits of both programs have unveiled systematic fraud and cronyism.

Perhaps most important, Prodi should enhance the European Commission's effectiveness as a regulatory agency. In the past few years, the EC has forced member states to cut back on industrial subsidies and blasted open Europe's airline and telephone industries through deregulation. And Prodi is known for taking a tough line on handouts. "Industrial policy should not be welfare for firms," he says. One reform that Prodi could lend his support to is the creation of a new, single European Securities & Exchange Commission.

Prodi's chances of getting something done are likely to be better than those of past EC presidents. For the first time, European Union leaders may allow Prodi to nominate his own commissioners--and fire them if they prove to be ineffective. That would mark a big step forward from the old system, in which governments appointed their own EC officials. Prodi may also want to appoint a smaller-than-usual European Commission of 12 members rather than 20, along with reining in the 14,000-strong apparatus of Eurocrats.

However tough a line Prodi takes, speed is crucial. The European Union still has a huge job to do to fight state subsidies and monopolies. And it has set a goal of opening its doors to new Eastern European members early in the next century. That expansion could stretch the European Commission's resources to the breaking point.

That means that Prodi has only five years to apply his business sense and radical budgetary medicine to shaking up the European Union's institutions. It's as tough a job as any he handled in Italy.

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