EUROPE AFTER MONTI

For five years Mario Monti has been the most powerful man in Brussels. As the European Union's competition commissioner, the former economics professor has busted cartels, stopped mergers and fought the protections EU members lavish on favored industries. He has slapped Microsoft with the biggest antitrust fine in history. He killed General Electric's attempt to buy Honeywell. He has taken on the EU's mighty antimarket axis, France and Germany, and forced them to slash billions in illegal aid to state-owned companies.

Now that Italy has refused to renominate Monti to fill another term when his current one runs out in November, EU governments are battling over who will get his post. The lines are drawn straight through Europe's middle. On one side are Germany and France, who are happy to see Monti go. On the other are the likes of Britain, the Netherlands and Sweden, high-growth countries that trust in competition. Monti's successor will help determine whether Europe ever becomes a truly single market of 450 million people dynamic enough to compete with the United States. Competition policy is "where the commission has real power to push forward the economic agenda," says Alasdair Murray, analyst at London's Centre for European Reform. "It's hugely crucial who gets the post."

The agenda shows why. Monti's focus was on opening up banks, postal services and telecom companies to EU-wide competition. He broadened the definition of illegal aid to include all kinds of sophisticated trickery--from Deutsche Post's use of monopoly profits at home to finance global acquisitions to the French government's raising fresh private capital for France Telecom with the promise of future aid. Among his achievements: striking down state guarantees for German public-sector banks and ordering Electricite de France to return a record 1.1 billion in illegal tax breaks. Now, a top EU official tells NEWSWEEK, the next big sectors are likely to include gas, airlines and rail networks--all split along national lines, and often highly subsidized. "All this is going to be very sensitive, with huge vested interests at stake," the official says. "You need someone who can face down the big member states."

It's nowhere near clear who that someone will be. German Chancellor Gerhard Schroder gave a good fright to liberalizers last month when he pushed for a German to be named as "supercommissioner" for competition, trade and internal markets, arguing that Germany, of all countries, was ready to take on "special responsibility for economic policy in the EU." Jose Barroso, the Portuguese prime minister named last month as president of the European Commission, politely declined.

Still, both France and Germany are pushing their candidates for top economic posts in the hope of slowing down EU reform. By the end of August, Barroso is expected to announce his new cabinet. Battling it out for economic posts are Tony Blair's former cabinet minister Peter Mandelson; the French regional-aid commissioner, Jacques Barrot, and Schroder's Social Democratic ally and present enlargement commissioner, Gunter Verheugen. The latest rumor is that the competition post might go to Charley McCreevy, the former Irish Finance minister, because he isn't German or French and comes from a small and neutral country.

It's not likely that the next competition commissioner will be as pro-market as Monti, but don't expect a sharp policy turn either. France and Germany are no longer powerful enough, in an expanded EU of 25 members, to dictate the agenda. Barroso knows that in order to keep Britain and other less enthusiastic members engaged in the EU, it's crucial that the new commission not be seen as what Murray calls "a statist throwback doing the bidding of Paris and Berlin." In deflecting pressures so far, Barroso has already shown himself to be feisty and independent. The future competitiveness of the EU will depend on whether his new competition commissioner will be, too.

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