Is the “Stop Barroso” campaign finally running out of steam?  Leaders of the main political groups in the European Parliament have pencilled in September 16 as the day when they will hold a vote on whether to confirm José Manuel Barroso for a second five-year term as European Commission president.

If this arrangement holds, then it will mark a defeat for the anti-Barroso forces who wanted to delay the vote until after Ireland held its October 2 referendum on the European Union’s Lisbon treaty.  They were striving to create a situation in which (assuming the Irish voted Yes) the EU would simultaneously choose its first full-time president, the bloc’s new foreign policy high representative and the Commission president.  In such circumstances, they hoped, Barroso would no longer be a shoo-in to run the Commission.  Other candidates would emerge.  Haggling would ensue.  It would (they dreamed) be adeus, José Manuel.

This scenario now looks rather less likely.  It reflects two factors.  First, all 27 EU governments support Barroso.  There neither is nor has been any other publicly named candidate for the Commission presidency.  Secondly, it has been crystal-clear throughout this unedifying saga that certain MEPs have been undermining Barroso purely for the purpose of securing influence over his future Commission and its policies as well as jobs and political power for themselves.

It is, of course, a fundamental human right of every MEP to make himself or herself look foolish in the public eye.  But perhaps it’s time now to get back to the real business of stabilising Europe’s financial sector and hauling the economy out of recession?

What should be the top five priorities of the next European Commission?

1) Top of my list is the defence, and if possible the strengthening, of the single European market.  This is the European Union’s bedrock achievement.  It secures prosperity for its citizens, and it underpins the EU’s collective weight in the world.  Without the single market, the EU would lose not merely its cohesion but its very reason for existence.  The single market is under strain at present because of the emergency measures taken over the past year to prop up Europe’s banking system.  These have, in effect, suspended the EU’s state aid rules in this sector.  The Commission will need to be tough in making sure that EU governments do not manipulate the rules as the emergency measures are gradually withdrawn.  Meanwhile, it should continue to press the case for integrating and liberalising the EU’s service sector, which accounts for two-thirds of all EU economic activity.

2) In second place is the need to propose useful reforms to the EU’s system of financial market regulation.  I stress “useful”, because the legislative initiatives put forward so far range from very good to mediocre.  The first category includes the creation of a EU-wide systemic risk-monitoring agency and new EU supervisory authorities.  The second category includes the proposals for clamping down on hedge funds and private equity.  These had little or nothing to do with the causes of the financial crisis.  The Commission is understandably under populist political pressures to take aim at easy targets, but it needs to be more courageous and redraft its proposals.

3) Third is a sharper definition of the Commission’s climate change and energy security policies.  Under José Manuel Barroso’s leadership, the Commission has done a good job of raising the profile of these areas.  But in my view its effectiveness has been diminished by having three separate commissioners for energy, the environment and transport.  Transport policy, in particular, is considerably less “green” and less ambitious than the EU’s rhetoric implies.  The idea of appointing a “super-commissioner” for energy and climate change has been around for quite a while in Brussels.  Now is the time to put it into practice.

4) Fourth is the task of ensuring that the Commission president and the EU’s foreign policy high representative - not to mention the EU’s first full-time president - do not tread on each other’s toes and make a mess of the EU’s relations with the outside world.  I am assuming here that the Lisbon treaty will come into effect next year.  Under the treaty’s terms, the next foreign policy chief, replacing Javier Solana of Spain, will double up as Commission vice-president.  The scope for collisions with the Commission president is obvious.  Another thing that needs sorting out is whether the foreign policy job will be purely diplomatic and political in nature, or whether it will have influence over areas such as humanitarian aid, enlargement and trade.  Up to now, these have been the preserve of different commissioners, but they are clearly intimately linked with the conduct of EU foreign policy.

5) Fifth and finally - but this is just a baffled observer’s thought - it might be a good idea for the Commission to get itself a president for the next five years.  Is anyone in the European Parliament listening?

From a European Union perspective, it’s somewhat surprising that the extraordinary financial crisis we’ve been living through has not generated more pressure for another big push at EU integration - if not in the political sphere, then at least in the economic one.  According to conventional EU wisdom, it usually takes a crisis to make Europeans understand why closer integration is a good thing.  But on this occasion, it’s not happening - or at least, not yet.

For the perfect explanation as to why this should be so, I recommend an article by Otmar Issing, the European Central Bank’s former chief economist, in the latest issue of the journal Europe’s World.  Issing’s article discusses the merits of issuing common bonds for the 16-nation eurozone - an initiative that would, in theory, mark a major step forward in European integration - and comes down firmly against the proposal.

Why?  The idea appeals to Dominique Strauss-Kahn, managing director of the International Monetary Fund, Joaquín Almunia, the EU’s monetary affairs commissioner, Giulio Tremonti, Italy’s finance minister, and many others.  Supporters of a common eurozone bond contend, in essence, that there is strength in numbers and (a more slippery point) that European solidarity is a noble cause.

They say financial markets would show respect for bonds collectively guaranteed by Germany, France and 14 other countries.  A common bond would put paid to the “unfair” practice by which markets have forced countries such as Greece, Ireland, Italy and Portugal to pay substantially higher interest rates on their government bonds, relative to Germany, during the financial crisis.  Europe would stand as one.

Here is Issing’s stony response: “A common eurozone bond would certainly imply that countries like France and Germany would have to pay higher interest rates, and that would in the end mean higher tax burdens for their citizens…  Issuing a common bond would be a first step on the slippery road to ‘bail-outs’, and thus the end of the euro area as a zone of stability.” 

With an eye on Greece, Ireland and Italy, he continues: “The immediate trigger and the root cause of rising spreads were financial markets’ growing concerns about the solidity of some eurozone countries.  This loss of credibility has been a consequence of dramatic deteriorations in their current and expected fiscal positions.  But a common bond is no cure for a lack of fiscal discipline; on the contrary, it would tend to encourage countries to continue on their wrong fiscal course.”

In other words, Greeks and Italians in particular should get their houses in order (the Irish are already trying).  German taxpayers have no obligation to shell out for any country that isn’t hard at work consolidating its public finances.  So says Issing, and Germany’s coalition government shares his views - while admitting sotto voce that if a weak eurozone country fell into truly serious difficulties, Germany would have no choice but to come to the rescue.

Issing’s argument is undeniably powerful.  But I ask myself one question.  The public debts of Greece and Italy are set to shoot up over the next few years.  There doesn’t seem much evidence of an effort in either country to tackle the problem with the determination that Issing regards as necessary.  The longer it’s put off, the harder the task will be.  Just how are they to be persuaded to do it?

There are two schools of thought on whether Latvia should devalue the lat, or fight tooth and nail to keep its currency peg to the euro.  One, espoused by the Latvian government, the International Monetary Fund  and the European Commission, is that devaluation would destabilise the Latvian banking system, wouldn’t really address the long-term challenges facing the Latvian economy, and would risk spreading shock waves beyond Latvia across the Baltic and into other parts of central and eastern Europe.

The other view, espoused by some of the world’s leading economists, such as Paul Krugman and Nouriel Roubini, can be summed up as: “Get Real”.  Without devaluation, the only path that Latvia can go down to extract itself from crisis is massive deflation, through spending cuts and sharp falls in wages that will inflict terrible damage on society and will unnecessarily prolong Latvia’s recession.

There is a lot to be said on both sides of the argument.  Devaluation would clearly be a very serious matter for a country where loans in foreign currencies account for 85 per cent of total lending.  Mass defaults would follow.  And it is by no means clear that devaluation would give a boost to exports.  Wood in its various forms - sawn wood, plywood and fuel wood - represented 20 per cent of Latvia’s total exports in 2007, but right now the world’s construction and housing sectors are in very poor shape and aren’t exactly thirsting for Latvian wood.

My own view is that, like most difficult economic choices in democracies, this is in the end a political matter.  If the Latvian population is prepared to tough it out, and if the Latvian political classes have the stomach to preside over years of horrendous deflation, then they should be free to go for it. 

But I have a caveat.  It is pretty clear that the only reason why the Latvians think it’s worth accepting all this pain is because they have a burning ambition to join the eurozone.  Latvia, which was annexed by the Soviet Union in the 1940s and only managed to break free in 1991, is already in Nato and the European Union.  Eurozone membership would underpin Latvia’s independence by anchoring the country more deeply than ever in Euro-Atlantic structures.

What EU policymakers should really be looking at is a way to accelerate Latvia’s entry into the eurozone, so that the economic pain and social strains associated with sticking to the currency peg last for as short a time as possible.

The trouble is, this option isn’t under serious consideration in Brussels or at the European Central Bank.  And that is why devaluation, though it is by no means the answer to Latvia’s troubles, remains a distinct possibility.

If one trend is emerging from the early results and exit polls of the European Parliament elections, it is that ruling political parties are in for an uncomfortable night. Voters are deserting them in droves and transferring their support either to mainstream opposition parties or to protest groups and extremists.

Put another way, voters have used the elections as a chance to state their feelings about current conditions in their respective countries. There has been nothing particularly “European” about the way they have cast their ballots.

This is especially striking in Ireland and Latvia, which - together with Hungary - are the European Union countries most seriously affected by the global financial crisis.  In Ireland, the ruling Fianna Fáil party and its Greens coalition partner have taken an absolute drubbing in local elections held simultaneously with the European vote. In Dublin, a leftist Sinn Féin candidate known for her hostile attitude to European integration looks likely to win one of Ireland’s 12 European Parliament seats.

In Latvia, which has eight seats, all but one of the ruling coalition’s five parties have been punished by voters for presiding over an economy that looks set to contract by a mind-boggling 20 per cent this year.  Meanwhile, a party representing the country’s large Russian-speaking minority has done well.

We saw a similar protest vote last Thursday in the Netherlands, where Geert Wilders and his anti-Islamic Party for Freedom scooped up four of the 25 Dutch seats in the EU legislature.

Still, we need to keep things in perspective.  Experts predicted before the election that anti-EU candidates and extreme nationalists would win about 50 seats in the 736-seat parliament.  That is the figure to keep in mind.  If it rises significantly higher than 50, then this will have been a grim night for European democracy.  If it is around 50, it will look bad, but it will mostly be a kick in the teeth for governments that have held power while the economic crisis has been at its height.

German chancellor Angela Merkel is usually a model of diplomatic politeness when she talks in public about Germany’s allies.  Not last Tuesday, however.

Towards the end of a speech in Berlin, she criticised the US Federal Reserve, the Bank of England and to a lesser extent the European Central Bank for responding to the global economic crisis with an unorthodox and irresponsible splurge of money creation.  Unless the central banks reversed these policies, she warned, the western world would find itself in the same kind of mess 10 years from now that it’s in today.

Well, she may be right, or she may not.  But what struck me most about this speech wasn’t her predictions of doom.  It was the carefully differentiated language that she used in speaking of the Fed, the Bank of England and the ECB.  Hastily written news stories and commentaries have assumed that she made more or less the same criticisms of each central bank.  Not so.

In the ECB’s case, she said: “Even the European Central Bank has bowed to some extent to international pressure with the purchase of covered bonds.”  In other words, “international pressure” - from what country or countries, she omits to say - is to blame for the ECB’s alleged recklessness.  ECB policymakers get a rap on the knuckles for bowing to this mysterious pressure.  But fundamentally, Merkel seems to be saying, it’s not the ECB’s fault.  It is the fault of foreigners who are putting pressure on the ECB.

In the Fed’s case, Merkel’s language was much stronger - and in the case of the Bank of England, it positively dripped with sarcasm and contempt.  Here’s what she said:  “I view with great scepticism, for example, the extent of the Fed’s powers, and the way that the Bank of England has also worked out its own little line in Europe.”

Don’t you love that word “little”?  It is a word that is disrespectful and totally superfluous to Merkel’s argument, and yet the German chancellor has chosen to include it.  In fact, the tone of her language is so dismissive of the Bank of England that one has to wonder what was bugging her and her speechwriters when they drafted this sentence.

Almost 20 years after reunification, it is a commonplace to say that Germany has become a normal European country.  Merkel’s speech proves it once and for all.

European Union policymakers like to make the point that, had the euro not existed, Europe would have suffered far more from the financial crisis and recession. Without the euro, there would have been a riot of competitive devaluations, causing angry recriminations among governments. Without the euro, countries such as Greece and Italy would have had nowhere to shelter from the storm. Without the euro, Ireland would have gone belly up and Dublin would be known as Reykjavik-on-the-Liffey.

All this is doubtless true. But if the euro is so successful, why is it unlikely to emerge from the economic crisis with an enhanced status in the global monetary order? This is a question asked, and answered very convincingly, in a new book, The Euro at Ten: The Next Global Currency?

“It is revealing that even in the midst of the worst financial crisis in 70 years, one widely and somewhat justifiably believed to have begun in the US economy and resulting from US policy mistakes, the flight to safety of world savings was to US treasuries, and not noticeably to the euro,” say the book’s authors.

They make four main points. First, the US has highly integrated financial markets, whilst those in Europe are fragmented. European banking and financial supervision is under national control. There is no single market for government bonds.

Secondly, the eurozone lacks the right rules and tools of governance. It does not have effective representation at global level in forums such as the International Monetary Fund. The area’s response to last year’s emergency in the financial sector was, to begin with, feeble and driven by national considerations. When it finally came up with some answers in October, the measures took the form of “ad hoc co-operation rather than of institutionalised co-ordination”.

Thirdly, eurozone governments have failed to make the euro an anchor of regional stability in eastern Europe. The crisis has made most EU countries outside the eurozone more eager than ever to adopt the euro, but eurozone leaders have rebuffed them.

Lastly - and, in my view, this is the killer argument - the size of the eurozone economy looks certain, in coming years, to shrink relative to the rest of the world. East Asia, the Gulf states and Latin America are all studying the possibility of regional monetary integration. That would leave the euro as a regional currency for Europe and not much more. China is calling for a new reserve currency to replace the dollar, but it’s certainly not thinking of the euro.

“There is no question this year will be a stress test for the European single currency,” Joaquín Almunia, the EU’s monetary affairs commissioner, said last week.

He was right - but the longer-term question is whether the euro’s international role is doomed to be permanently limited.

If you think the economic news is grim in the US, the UK or Germany, spare a thought for the small Baltic states of Estonia, Latvia and Lithuania. All face the prospect that their gross domestic product will collapse this year by 10 to 12 per cent. Moreover, all operate a so-called currency board regime, or peg, which restricts the movement of their currencies against the euro and prevents them from stimulating economic recovery by means of exchange rate depreciation.

One answer, as the International Monetary Fund pointed out a few weeks ago, would be for the European Union to relax its rules and let the Baltic states swap their currencies for the euro without formally joining the eurozone. This would in principle ease their foreign debt problems and restore confidence among foreign investors. The alternative - severe government austerity programmes, followed by a sharp drop in living standards, social unrest and political instability - seems far too harsh and risky a solution.

But the EU’s authorities, especially the European Central Bank, are dead against unilateral adoption of the euro by any EU member-state. One can see why. If the experiment went wrong, there would be a danger of contagion spreading to the 16-nation eurozone itself. The guardians of European monetary union, a project only 10 years old and one that is central to the notion of ever closer European integration, are simply not prepared to take the risk.

Across central and eastern Europe, however, the voices speaking up in favour of a rapid, unorthodox switch to the euro are getting louder. Today it’s the turn of Ludek Niedermayer, a former deputy governor of the Czech central bank, who writes: “Unilateral adoption of the euro would be extraordinary. But so too is the economic crisis. Tolerating such a move would not reduce, but rather boost, the EU’s credibility.”

What almost no one has bothered to mention so far in this debate is that two places in central and eastern Europe already use the euro without being formal eurozone or even EU members. They are Montenegro and Kosovo, which unilaterally adopted the euro on January 1, 2002, at the same time as France, Germany and other founder-members of the eurozone. This has given Montenegro and Kosovo some protection against the whirlwinds whipped up by the world economic crisis.

Amazingly, though, Montenegro’s authorities - or, at least, the chief economist at its central bank - do not recommend unilateral adoption of the euro by the Baltic states and others. Such a step would risk incurring the wrath of EU policymakers and even the denial of various EU funds and grants, the Montenegrins caution.

To summarise: a country that is outside the EU and outside the eurozone, but uses the euro, is telling countries that are inside the EU but outside the eurozone not to use the euro, while the EU and eurozone let countries that are outside themselves use the euro but won’t extend the privilege to countries inside the EU but outside the eurozone.

There are the makings of a good farce in this - if we weren’t all losing our money.