He is a Frenchman, so the Brits were nervous. He had absolutely no experience in the financial services industry, which made the bankers leery.
When Michel Barnier took the reins as European Union internal market commissioner in early 2010, observers wondered whether he was up to the job of overseeing a sweeping overhaul in EU financial regulation sparked by the worst economic crisis since the Great Depression. They're not worried anymore. Barnier has proved himself an effective pragmatist, a strong champion of the European cause who has used diplomatic finesse to win over his opponents and push through new policy faster than anyone expected.
"He's not a visionary, but he knows the Brussels political machinery and sees himself as a consensus builder," says Fredrik Erixon, director of the European Centre for International Political Economy, a Brussels think tank. "In terms of exerting a positive influence in establishing pan-European regulations, he certainly gets high marks."
During his five-year term, the EU will for the first time not merely adapt financial services regulations from international standards. Instead, it will attempt to craft an entirely new financial regime for its 27 member states.
Barnier, a member of France's ruling center-right UMP party, has pulled off two significant victories in that ambitious project.
First and most recently, he got Europe's new financial watchdogs up and running at the start of this year -- hardly a sure thing. Though his predecessor, Charlie McCreevy, suggested creating a new set of regulatory agencies to detect threats to the financial system, it was Barnier who made sure it happened. On Jan. 1, the new European regulators for systemic risks, banks and securities and pensions markets opened for business, marking what Barnier heralded as a "turning point for the European financial sector."
In a second triumph, Barnier persuaded the European Parliament last November to sign off on new registration, reporting and capital requirements for hedge funds and private equity firms. It also imposed restrictions on managers' pay and the use of debt in investments. "Barnier took a very poorly drafted proposal he inherited from his predecessor and gradually transformed it into a piece of legislation that's better than the initial draft," says Nicolas Véron, a senior fellow at Bruegel, another Brussels think tank. "He may be a politician, but he's also a pragmatist."
As part of that pragmatic approach, Barnier has made himself a familiar face in the City of London, meeting with financiers -- many of them wary of Brussels' heavy hand -- at least four times since taking office.
"Of course, I want a strong, vibrant, sustainable financial sector in the U.K.," he told British lawmakers last December while making the case for pan-European regulation. "Financial markets operate on a global scale, which means that our regulatory and supervisory approach also need to be at a European and global level."
Barnier's pragmatism is a product of a lifelong political career. He was France's youngest elected deputy (at age 27), moving on to serve as foreign affairs minister and European commissioner in charge of regional affairs and institutional reform.
When Barnier was nominated for the Brussels job, French Prime Minister Nicolas Sarkozy gloated, hailing the move as a victory for France and a defeat for the U.K.
Barnier quickly and astutely distanced himself from the inflammatory remarks, quoting from Adam Smith's "Wealth of Nations" at his confirmation hearing and promising not to take marching orders from Paris.
Critically, he helped push through new EU-wide rules for credit ratings agencies and derivatives. Earlier this month, Barnier called for a common EU-wide approach to managing faltering banks, especially those operating in more than one member state.
"Although our first objective is better prevention, banks will fail in the future and must be able to do so without bringing down the whole financial system," said Barnier, who hopes to unveil a formal bill by summer.
Although the Commission is considering new regulations for managing failed banks, it has so far steered clear of any discussion of bank capital requirements, ceding that ground to the Basel Committee on Banking Supervision. The group of central bankers and finance officials last year unveiled tougher new Tier 1 capital requirements on banks -- Basel III regulations to be phased in gradually, starting in 2013.
Barnier's current job is likely to be his last in Brussels, and any future in French politics will depend on the outcome of next year's French elections. Before he returns to Paris, he will face tough fights over financial regulation. Whether Barnier preserves his reputation as a nonideological pragmatist remains to be seen.