What relief among EU competition officials when, on September 17, the European Court of First Instance upheld the Commission’s decisions on the Microsoft case!

I know the case could still be appealed to the full European Court, but I’m sure that for Commissioner Neelie Kroes it was a major boost just when she needed it – on the eve of proposals for liberalising Europe’s energy market.

The Microsoft judgment was crucial for the European Commission as a whole. Defeat at the hands of the CFI on such a major case would have undermined the Commission’s overall credibility, because competition policy has become the main driver of European internal market policy.  As the number of new proposals from the European Commission falls to an all-time low in the service of “better regulation”, so a bigger burden falls on the instruments of implementation and enforcement, especially competition policy.

The fundamentals of the case take us back to the 1984 IBM affair, when a European competition ruling required the firm to provide interoperability information to rivals on product attachments, computer memory and software and the personal computer revolution was launched. Commissioner Kroes anticipates equally dramatic results from this latest ruling. We’ll see.

That’s certainly not how US Assistant Attorney General Thomas Barnett sees it. He said the judgment could “chill innovation and discourage competition” – a rather extraordinary intervention, not so much for what he said, as that he said anything at all, given the close relationship between EU and US competition authorities.

I was glad to see that Neelie Kroes responded to his remarks in her customary forthright manner.

The energy package, with its proposals for separating ownership of gas and electricity networks from generation and supply, was adopted two days after the CFI judgment. It was the outcome of a long process of consultation and political arm-wrestling. The battle lines had long been drawn, with Germany and France particularly resistant to the sort of changes which the Commission wanted.

I suppose much of the package was as expected, with the Commission’s favoured option of ownership unbundling side by side with the less-favoured accountant’s solution of independent system operator (ISO), where vertically integrated companies would survive, allowing the regulator and not the market to ensure the separation of their various activities. The response of the market players was much as expected as well – see the FH analysis.

A bigger surprise to me was the proposed Agency for the Co-operation of National Energy Regulators “with binding decision powers” –  ACER. This body would be a reborn version of the EU networks of national regulators which have become increasingly important as the Union has expanded.  These networks have a special role where the Commission seeks to ensure consistent implementation of European rules across 27 member countries in sectors such as competition policy, financial services, telecoms and energy.

From the Commission’s point of view the key to the success of each network is that the 27 member bodies in effect switch their loyalties. They should no longer act at the behest of their national political masters; their task becomes the objective implementation of European law. This of course is no easy task.

The EU networks of regulators for gas and electricity markets have not always distinguished themselves by their independence of national governments (the Spanish electricity regulator springs to mind), so the Commission is seeking a half-way house which sets up a body with regulatory powers without trying to subsume national regulators into a single European regulator.

It seems that Commissioner Viviane Reding is facing a similar challenge with her draft telecoms package. According to the FT she is facing fierce opposition from Commissioners Kroes and Verheugen for advocating an EU telecoms regulator and “functional separation” for dominant telecoms operators which looks much like the ISO energy model.

My guess is that this formula is seen to threaten the role of competition policy in the European telecoms market. I recall the current Competition Director General telling a Brussels conference that maybe regulation was the enemy of competition.

Let’s not write off Commissioner Reding’s political capabilities. It was she who proposed the Eurotariff for mobile roaming and has pushed through new EU tariff structures in the face of fierce lobbying from the mobile phone industry and opposition from other Commissioners.

As for the new energy package, it’s interesting that the impact assessment is the biggest document – 107 pages. Its analysis concludes that the proposals put forward by the Commission are the best options. You could paraphrase Mandy Rice-Davies, “well it would, wouldn’t it”, because there is criticism that EC impact assessments are not sufficiently independent of the Commission, but if the Commission is doing its job properly surely its own internal analysis should reflect the same conclusions as the published assessment.

Talking of better regulation, it seems that the Barroso Commission is finding it just as difficult to withdraw proposals or to modify them in a de-regulatory direction as it ever was to introduce the legislation in the first place.

For instance a proposal to reduce record-keeping on hygiene practices for small bakers, butchers and grocery shops ran into opposition from the big operators. Although it would not affect the level of sanitary protection, they thought it would undermine competition.

The affair of the Chinese toys was a bit different. In this case the Commission proposal would reduce checks on imports of industrial products but not of consumer goods. The Council of Ministers went one further, going for the light touch on consumer products as well. Commissioner Meglena Kuneva has been fighting a rearguard action in the Parliament to reverse this, with the scandal of Chinese toy imports still running strong. It is a reminder that consumer protection was always a major driver of new legislation.

A brief digression to the UK: I see that the Dutch cabinet has decided not to hold a referendum on the EU Treaty. This is a blow to David Cameron’s campaign for a vote on the Treaty in the UK. It always looked as if the Tory leader was using his policy on Europe – including the order for the Conservative Group to sail off to a desert island – as a lightning conductor to divert right-wing disaffection within the party away from new-look domestic policies.

The Conservatives’ policy on Europe should spike UKIP’s guns if there is an early general election in Britain. But what if an EU Treaty is adopted and ratified by the end of 2008: what home then for the Tory disaffected?