Play by the rules

Financial regulators everywhere have been criticized for failing to crack down on risky banks. But European Union Competition Commissioner Neelie Kroes gets even more stick for doing her regulatory job too well. The 67-year-old is developing an unenviable reputation for trying to stop governments from rescuing those same risky banks, even after the credit crunch laid them low.

She could still punish Britain for its handling of Northern Rock plc, the first European bank to get into trouble, way back in 2007. As recently as May 20, Britain's beleaguered Lloyds Banking Group plc warned that the EU may yet stymie government plans to insure £260 billion ($421 billion) of its toxic assets or demand painful restructuring of the deal.

The Dutchwoman's position as antitrust queen has sparked controversy in the U.S., especially her decision to whack Intel Corp. with a €1.1 billion ($1.6 billion) fine for anticompetitive practices against competitor Advanced Micro Devices Inc. But it is Kroes' role in preventing the EU's 27 member governments from unfairly subsidizing their domestic industries to the disadvantage of local or cross-border competition that is giving her a bad name in Europe.

She found herself temporarily sidelined as national governments rushed to rescue crisis-hit banks at the start of the crunch. Governments did go through the motions of turning to Brussels for the green light on bank bailouts. The British government did accept her demand that Northern Rock shrink its business and balance sheet dramatically in return for accepting state money.

But there was a widespread belief that Kroes and her team would have to cede moral and perhaps even legal authority for the duration of the crisis while member states drove through whatever populist action they wanted. Brussels would not dare to risk undermining national governments in their hour of need.

It didn't take long, though, before tough-minded Kroes began to reassert herself. Whether it was French and German attempts to extend the state subsidies beyond banking into the automotive industry or the risk of reversing years of hard-won progress in creating a single EU market in financial services, the European Commission soon hit back.

When Britain changed tack earlier this year and began pushing Northern Rock to revive its mortgage lending instead of shrinking the balance sheet and repaying the government, Kroes revived an in-depth investigation of the state-aid package. She said if the new U.K. policy distorted the market, she would insist on British government measures to correct those distortions.

At the same time, the Commission announced it was clearing the German government's €18 billion bailout of Commerzbank AG, but only on condition it sell assets representing a huge 45% of its balance sheet and accept restrictions on further acquisitions. It also launched an inquiry into the German government's takeover of public-sector and commercial real estate bank Hypo Real Estate Holding AG.

National governments resent the commissioner's activism, which inhibits their freedom to take emergency action and keep their economies afloat. But they'd be just as angry if the "Eurocracy" did nothing to stop other member states from using subsidies to poach market share. Listen to the anger now, when Belgian and British workers fear Germany may have rescued Adam Opel GmbH, the German arm of General Motors Europe, at the expense of linked factories in their own countries.

The uncertainty over the British toxic assets scheme is partly the U.K. government's fault, since the details of the scheme have not yet been submitted to the EU. And the longer Brussels takes over its investigations into Northern Rock and Euro Hypo, the longer the British and German governments have to get on with the job of strengthening their respective institutions unhindered by regulatory demands.

And those demands, when they finally come, will give ammunition to anti-European propagandists in the national capitals. But in the meantime, Kroes has made it clear that individual governments cannot ignore the rules with impunity. Even -- or especially -- in times of crisis, the basic principles of a free European market still apply.