PETER THE GREAT

We're on the ninth floor of the European Commission's sleek Berlaymont building in Brussels. The showdown begins politely but soon grows tense. On one side of the table: Trade Commissioner Peter Mandelson and his aides; on the other, three lobbyists in blue suits. The men in blue are there to plead the case of a major European industry hurt by Chinese competition after the European Union lowered certain trade barriers. (To sit in on the meeting, NEWSWEEK agreed to disguise the exact nature of the discussion.) The Chinese seek to "buy the market," say the lobbyists: flood Europe with cheap imports and then, having eliminated the European competition, jack up prices. Poof! An entire European industry gone.

Wait a minute, says Mandelson. Trade liberalization is a good thing. Yes, we pay a price for it, but it's worth paying.

No, you wait, the lobbyists retort. Our industry is wracked by big layoffs, widespread bankruptcies and the disappearance of investment capital. "A disaster," one calls it. "Are we prepared to accept huge job losses in Europe in the face of predatory pricing from China?" The heat in the room rises. In the silence that follows, Mandelson's implicit, chill answer is: yes. The chief lobbyist sighs: "Forgive the passion."

"Oh, I do, I do," Mandelson chirrups as he rises from his chair, his optimism intact. "I'm a politician, you know."

Is he ever. These days, he needs to be. Europe has arrived at another of its all-too-frequent critical junctures. Just as transatlantic political tensions seemed to be on the wane following the elections in Iraq, trade frictions are rising. Despite the good will generated by President George W. Bush during his recent charm offensive on the Continent, ugly trade disputes with Europe--from arms sales to China to bananas--loom on the horizon. Closer to home, economic reforms favored by Mandelson and other progressives are being soft-pedaled or shelved by European leaders seeking to appease restive voters, alarmed by job losses and slumping growth. Much hangs in the balance, from the proposed EU constitution to the whole future of the European experiment.

The rest of the world is watching, too. Trade is the one area where Europe's clout can match that of the United States. Militarily, Europe doesn't hold a candle to U.S. might. Economically, however, the EU (population: 450 million) is undeniably a superpower, boasting a GDP slightly larger than America's. That's a lot of weight on the slender frame of a trade commissioner who's been on the job for only four months. Mandelson, 51, needs to soothe the growing acrimony between Europe and America over subsidies to their big aircraft manufacturers, Airbus and Boeing. Moscow will want Mandelson to lobby for Russia's bid to join the World Trade Organization. Beijing may play Washington and Brussels off one another as the United States and Europe vie for increased trade with China. Europe's former colonies in Africa and the Caribbean will hope that Mandelson will protect their banana exports to Europe and not lower tariffs as Central and South American governments are demanding.

For their part, the nations of the developing world will look to Europe to stick up for them amid what they sometimes see as America's trade imperialism. In the manner of British Prime Minister Tony Blair, his political patron and friend, Mandelson is not averse to helping. "We live in a new world with new interests," and it's up to the world's two great trading powers to promote prosperity in the developing world, he told NEWSWEEK in an interview in his office last week. "The days when the United States and Europe could carve up the cake and then pass the crumbs around are through."

Last week, however, his attention was drawn closer to home. In part because of the strains of adding 10 new members last year to the existing 15 EU states, normally pro-European citizenries are turning against the proposed EU constitution. A number of European countries will hold referendums on the constitution during the coming year, and those votes will be taken as strong indicators of popular sentiment on European integration. A growing number of Europeans worry that the seeming rush to bring in new member states will dilute "European culture," as it is often framed--especially with the prospect of Turkey (and its Muslim population) joining one day.

Mandelson is sympathetic to those concerns. As he told NEWSWEEK, "France and Germany--notably but not alone--are finding it difficult to come to terms with enlargement." But he is dismayed that the changing political climate will slow economic reforms that he believes are essential to accelerate European economic growth and make the EU more competitive. "Europe needs to go forward, not backward," he said.

His fears were realized last week when a French political imperative led to economic backsliding. France, normally a hotbed of pro-Europeanism, holds a vote on the constitution on May 29. At least three recent polls there show the non vote edging ahead. Pro-Europe politicians panicked. Egged on by French President Jacques Chirac, they threw a bone to a worried public. EU leaders meeting in Brussels backed away from a plan to allow service providers (from architects to plumbers to surgeons) to work freely across all 25 EU states. In this last great leap toward full economic integration, the holy grail of ever-closer union, Europe has pulled up short--bothered, bewildered and bickering.

It's an accident of timing that "Peter the Great" finds himself in the cockpit of Europe at this moment of uncertainty and self-questioning. Along with Blair and now Chancellor of the Exchequer Gordon Brown, Mandelson was one of the architects of the radical reformation of the Labour Party, transforming it from a bastion of old-style socialism into New Labour, a business-friendly, vote-winning machine now seemingly on the verge of its third straight electoral triumph. But what Mandelson mostly got credit for was a bright marketing idea--replacing the party's militant red flag with an unthreatening red rose. ("Ah, the red-rose man," Prince Charles once greeted him.)

As a sharp-elbowed reformer, he made plenty of enemies in the party, and had to resign two cabinet posts for alleged conflicts of interest. When Blair nominated him to the European Commission job last year, the anti-Mandelson factions in the London media--a very populous group--rose up in fury. "How dishonest, how deceitful, how sleazy does someone have to be these days before being disqualified from holding a high position in public life?" sputtered the Daily Mail columnist Simon Heffer.

Mandelson's reformist tendencies and tough hide should serve him well in Brussels. Burnishing his credentials as a Europeanist, he has won high praise on his side of the Atlantic for vociferously standing up to Washington in the growing feud between Airbus and Boeing. Yet he is by no means "old Europe," either--certainly not in the style of German and French politicians who have long led the Continent. As a Brit, he's used to a tradition of strenuous Euro-skepticism. A leader of an emerging generation of up-and-coming "new Europe" pragmatists, he prizes fiscal and economic reform over the "sentimentalism" of Europe's idealistic postwar architects.

As it was with the men in blue, China will be the chief battleground. The United States and the EU are neck and neck behind Japan when it comes to trade with China. As part of an effort to normalize relations with Beijing--and, not coincidentally, to boost trade--the EU has proposed lifting its embargo on arms sales to China, imposed after the Tiananmen Square massacre in 1989. A few weeks ago, it looked like Europe would lift the embargo by summer. Under pressure from Washington--much of it delivered by President Bush directly--that now looks increasingly doubtful, at least unless the EU imposes strict conditions on sales. In the China arms case, Mandelson's pro-Europeanism and his pro-Americanism are clearly exposed. Are they in conflict? So far, he's trying to see both sides, have it both ways. "I've felt we can lift the arms embargo, but we have to replace it with a code of conduct," he said in the interview.

Then there's the Doha round of global trade-liberalization talks. "Mandelson's test is whether he can get the Doha round on track," says Lourdes Catrain, a trade lawyer at Hogan & Hartson in Brussels. The painfully slow-moving talks have been conducted under a putative deadline of 2007, which is when U.S. negotiating authority expires. Mandelson concedes that while the goals of Doha may be achievable someday, the 2007 deadline is not likely to be met. "I'm impatient," he said last week, "but I'm also realistic."

His style has carried the day--so far. Mandelson is a grade-A networker. His closeness to Blair has given him entree to corridors of power around the world, and he has built upon that through a center-left think tank he founded in 2000, Policy Network. "He's one of the few commissioners who even before he arrived in Brussels had an excellent contact book of senior political figures in America, Europe and Asia," says Centre for European Reform director Charles Grant.

Compared with the backstabbing and infighting of London politics, Mandelson's stint in Brussels has been a picnic in the park. Astutely, he has stuck close to Jose Manuel Barroso, the powerful European Commission president whose views are closer to Blair-Mandelson than the Franco-German axis. Four months in Brussels does not a career make. But one thing is certain. Mandelson clearly relishes his new place in the spotlight.

PETER THE GREAT | News